UPM-Kymmene Oyj (UPM.HE) Earnings Call Transcript & Summary

Hello. Good afternoon, good morning, and thanks for joining me today for an update about something that we have shared this morning. Together with me today, there will be also Tapio Korpeinen. I'm Massimo Reynaudo, I'm the CEO of UPM. Earlier on this morning, we have disclosed the fact we have reached agreement, agreement under the form of signing a nonbinding letter of intent with Sappi for the creation of a joint venture for a graphic paper company. The 2 parties will be owning the joint ventures in equal proportions. And the joint venture will be including the -- within the perimeter, the UPM Communication Paper business as it is today and Sappi Graphics Paper business in Europe. UPM and Sappi have separately and independently over time, stated their long-term commitment to the graphic paper market. Through this operation, we want to some way restate our commitment and with the creation of this joint venture, basically transfer this commitment into an action, into a company that will continue this, let's say, this commitment we have made into the future. On top and beside that, the 2 companies, UPM and Sappi share common values, have similar corporate enterprise cultures, value propositions based on quality, on reliability, on sustainability. So this represents a strong base for the success of the joint venture. But coming to some numbers and some financials. The joint venture will have at this creation an enterprise value of EUR 1.42 billion, excluding the value of the synergies it will generate. From a UPM specific angle, this transaction will generate a financial benefit in the scale of about EUR 1.1 billion, which includes EUR 613 million of cash payments and EUR 406 million of pension liabilities that will be transferred to the joint venture. Besides that, as anticipated before, UPM will be holding a 50% share in the joint venture, which will create the possibility for further financial benefits to the distribution of dividends in the years to come. But Tapio will be coming back to the financials and providing some more color around what I was -- what I just said. But besides what happens to the joint venture and the Communication Paper business that will be part of it, this transaction, once implemented, will bring significant benefits also to the future UPM beside or, let's say, ideally without Communication Paper. The new UPM will have or will see improved profitability, a stronger balance sheet, a lower leverage and a much more -- much stronger growth-oriented portfolio. And this is something I'll be expanding about later on. It's fair to state that the transaction is subject to a definitive agreement between the 2 parties and the approval from merger control authorities in Europe, in the U.K. and in some other jurisdictions. Going a bit more in the detail of the joint venture from an operations standpoint, it will include within its perimeter 12 paper mills. 8 paper mills, 12 paper machines will be contributed by UPM Communication Papers. So I'm referring to 3 mills in Finland, Kymi, Kuusankoski, Jamsankoski; 3 mills in Germany, Schongau, Augsburg, Nordland; 1 mill in the U.K., Caledonian and 1 mill in the U.S. Blandin. Sappi will be contributing 4 mills, 7 paper machines. The 4 mills are in the following country, one by country, in Austria, in Germany, in Finland, in the Netherlands. But then when we talk about the perimeter of the business from a portfolio standpoint, product portfolio standpoint, the joint venture will have products basically serving all the needs of the graphic paper industry, from newsprint grades all the way through wood-free coated paper, all what's in between and all the applications behind these different products. From a geographical standpoint, it will be a global business. It's fair also to recognize that the center of gravity of this business will be mostly around Europe. If we refer to the revenues generated at this point in time, about 3/4 of the revenues are in Europe, the rest being more or less and equally divided between North America and the rest of the world. But basically, the joint venture, putting together, let's say, assets and resources from the 2 companies will enable a value creation through the joint venture in a level and in areas that none of the 2 companies separately will be able to tap into. And to give you some examples of these areas, there can be synergies generated through asset optimization through allocating or reallocating volumes on to most cost competitive assets through product rationalization, there will be most likely a fair amount of duplications. There may be a number of duplications in a number of other areas, which offer opportunities for streamlining. There will be equally opportunities to capture synergies to increase efficiency in the area of sourcing or logistics. And in the area of logistics, a wider mill ecosystem will represent also -- will offer also the possibility to serve customers potentially from different locations and ideally from locations which are closer to customers with also benefits in the area of sustainability. So we estimate that over the 3-year period after closing, the amount of this synergy on average can be in the area of EUR 100 million per annum. We believe this transaction will be positive for UPM, will be positive for Sappi, will be positive for the joint venture, but we believe also strongly it will be positive for the market. In a market which is highly competed, which is struggling under the pressure of severe overcapacity, the joint venture represents the presence of a player beside the many other players in this market, which will be offering reliable and committed supply to the customers. Both parties separately today, UPM and Sappi have strong commitments in the area of sustainability. This commitment will just be joined and will be developed further, as I said with the example before, talking about logistics, will be enabled further and developed in areas or to levels that each part individually will be struggling or will not be in a position to deliver. So in other terms, the joint venture will ensure long-term viability for the graphic paper market and the customers in this market because the paper may just be the substrate upon which their product travel, the product being advertising or information or other things. But the core business of our customers, therefore, a different one. But without the substrate, their product will not travel. So a viable, let's say, reliable supply of paper in the long run is critical to ensure that the graphic paper industry, meaning the customers in this industry will have a long-term solution for their business. But having said that, as I anticipated, I will now hand over the stage to Tapio for some more depth about the numbers I've just introduced.

Okay. Thank you, Massimo. So in the next couple of slides, I will go through the material terms agreed in the letter of intent, which is nonbinding, as Massimo already pointed out. So first of all, the enterprise values based on which the agreement has been made is EUR 1.1 billion for communication papers, UPM Communication Papers and EUR 320 million for Sappi Europe business contributed to the joint venture. And as Massimo pointed out already, these values are excluding the value of synergies in the joint venture. Then as purchase price cash proceeds of EUR 613 million will be paid by the joint venture to UPM and EUR 139 million to Sappi. And as a result, then UPM and Sappi would own 50% of the equity or shares of the joint venture. The joint venture will raise long-term funding, long-term debt independently. So there is no recourse to the shareholders. And the funds then will be partly used for the cash proceeds as part of the purchase price payable to the shareholders. The objective of the joint venture is to independently operate the Graphic Paper business to implement the synergies and therefore, then generate value for the shareholders. And based on that, then the dividend -- the joint venture would distribute dividends to the shareholders in line with its financial performance and standing. And then there will be the optionality around exit for the shareholders of the joint venture. So 3 years after the closing when the joint venture is expected to have completed the integration and realized significant synergies, then either shareholder may initiate divestment of their shareholding. I would say from UPM point of view or perspective, the financial merits of the transaction are quite material. That includes, again, the EUR 613 million cash payment that will be received at the time of closing to UPM. And at the same time, also pension liabilities connected to the Communication Papers business will be transferred to the joint venture. And those pension liabilities in the UPM balance sheet today are valued at EUR 406 million. And then obviously, UPM will have the 50% share of the joint venture. So altogether, significant financial benefit realizing immediately at the time of closing from the cash payment, transfer of liabilities and then, let's say, either in the forms of dividends and eventually at the time of exit in terms of the value creation within the joint venture. This EUR 1.1 billion valuation of UPM Communication Papers that I mentioned equals multiple of 4.6x EV/EBITDA. If you look at the last 12 months EBITDA generated by UPM Communication Papers, including third quarter of 2025. These assets are less than 10% of UPM's total assets. And then when the joint venture is up and running, UPM's ownership would be accounted for using the equity method in UPM accounts. Here, we have an illustration based on reported figures of UPM Group, first of all, for last 12 months, including the third quarter of this year, which is on the left-hand side here. Then we have the reported figures for the 12 months for Communication Papers and then basically pro forma illustration what UPM Group without Communication Papers would look like, again, based on this LTM figures. So as you can see in the middle column here, Communication Papers during this 12-month period generated EBITDA EUR 241 million, about 9.3% of sales. EBIT, EUR 180 million, 6.9% of sales. So lower margin business than UPM Group as a whole. But then as you can see, 16.9% comparable return on capital employed. So in a declining market, in a kind of a capital-light business, it's possible to generate good returns. Then on the other hand, if you look at the UPM figures, excluding Communication Papers, margins are higher. EBITDA 14.3% EBIT 10.3%. So basically, the remaining of the rest of UPM then focus on higher-margin businesses in growing markets. And shortly, Massimo will tell about that more. But then before that, about the indicative time line or the next steps. So during the first half of 2026, we expect to complete the negotiations of definitive agreements between Sappi and UPM for the joint venture. And also, we would expect during that time to complete negotiations or agreement for external financing for the joint venture. And then we would expect to be able to close the transaction by the end of next year, subject to conditions and regulatory approvals, most notable amongst which is the approval by the merger control authorities. But now, I'll hand it over to Massimo to talk about UPM's focus going forward.

Thank you, Tapio. Actually, now let's look at the other half of the sky. So how would UPM in the assumption of a positive transaction that will lead to the constitution of this joint venture? How would UPM look like? It will be smaller for sure. But it will have a strong growth profile. As Tapio has illustrated earlier on, we'll have stronger margins, we'll have a strengthened balance sheet and we'll have no longer exposure to declining market and specifically the declining graphic paper market. But talking about the portfolio, what is or how would the future UPM look like? Well, first of all, this portfolio will be insisting on 3 segments: Renewable Fibres, Advanced Materials and Decarbonization Solutions. Each of these segments encompasses different businesses. So from the Renewable Fibres, it's our pulp-making units, both in the Finnish or North platform as well as in the South or Uruguay platform. In Advanced Materials, pending the outcome of the strategic review about the plywood business, there are Adhesive Materials and Specialty Papers. In the Decarbonization Solutions, there is Energy. Our energy business and our biorefining business encompassing under this definition, both our biofuel and now the biochemical business we are creating. I said that -- or I talked about a growth-oriented profile. And when saying this, I'm not just kind of portraying an ambition for the future. In the graph you see on the screen on your left, you see what has happened in the last 10 years. So if we take this portfolio of businesses, which I've just described, and we simply look at the top line growth during that period of time, we see that, that is contributed or -- sorry, combining into a 4.4% CAGR. This is well above the GDP growth during the same period of time. So we have demonstrated or this portfolio has already demonstrated the ability to grow ahead of the market in the past. But now at the same time in this series, the series of numbers you see in 2024. Let me remind you that if we talk about large investments of the recent past, that's not including Paso de los Toros at full potential. That's not including, for example, anything of Leuna. These, and these are just examples, are all elements that are going to be building on this trend of growth you have seen in the past. Now we shift and move the attention to the right part of the screen. You also see the global profile of this portfolio. Revenues referring to 2024 are -- more than half of them are outside Europe with significant presence in Asia and North America and of course, in the rest of the world. You may recall from previous meetings that we have indicated our willingness, and we are aligning our plans behind our ambitions to grow in Europe, but then to grow more than proportionally in the other parts of the world because in these businesses, in this portfolio we have described, there are besides Europe, significant growth opportunities in other parts of the world. So we will continue to build a global resilient and performing business. Now let me just give you some more color about each of these businesses and how we look at them. I'd like to start in this slide from the bottom. You see on the very right, a sign plus. That is a figurative characterization of the growth -- the future growth in this market segment. So the Fibres market going forward is expected to grow, give or take, and across cycles at GDP growth level. In this market, as said before, we are now at the point of capturing fully the value coming from the investment done in Paso de los Toros and in Uruguay in general. 2025 has been the year where we have been running first year full year at full capacity. But as communicated in other occasions, we do see the possibility to push capacity and production well above our current levels through debottlenecking, which means in a CapEx-light and CapEx-efficient way. So this will be contributing to generating more top line growth. I would say this irrespective from the market. But equally, you may recall from previous call, we have indicated the confidence in the next couple of years to extract still significant cost improvement in Uruguay, and this will be contributing to a bottom line growth in this business. So this business at the end of this significant investment cycle in it will be a strong cash generator. And with this cash, we will be supporting and fostering our growth ambition in this space as well as in other segments of our portfolio. If we talk about Advanced Materials, we have characterized the growth in this segment always figuratively with a couple of plus. This is to indicate that these businesses in system segments that typically and across cycles grow at more than GDP pace. We put a lot of focus and effort in recent times to improve and expand the competitiveness of this business. But we also put investment to capture further opportunities. If you remember on the left part of the circle that I presented before and outside Europe. I'm referring here to investments we have announced for adhesive materials in the U.S., in Malaysia, in Vietnam. Investments in this area are CapEx light. And in this area, through the rightsizing activities we have performed or we are performing so far, we do consider to have enough capacity to support the organic growth for the years to come without the need of any substantial new capital injection. In this area, we also stay open to consider acquisitions if and when the right conditions will materialize in the future to accelerate the growth in this segment. Last, absolutely not least, Decarbonization Solutions, which sometimes -- some ways, sorry, represent the newest businesses in the UPM portfolio. It is businesses that insist on, let's say, markets, which have, in a number of cases, exponential growth opportunities. This is what, again, figuratively, we have characterized with some world-class signs. Let me be more specific about that. If we look at energy, for example, in Finland, the demand of CO2-free energy is not -- will not just be growing, is already growing. It's all indications point toward a significant growth in that -- in the space of the demand in that space, supported by the electrification of the economy, supported by data centers, future projects, but current projects being in a construction phase, potentially amplified by large scale, I would say, industrial project based on energy intense and needing CO2-free energy. So energy is a business whose fundamentals are set to create further, let's say, revenue profit and value going forward. Bio-refining, well, that is including biofuels. I think we can say we have turned the business around from the tough last couple of years when the business due to market circumstances as being loss-making, but commented in our quarterly call about the performance of the business and an outlook for the market as a whole that is definitely more positive than it was until some time ago. And here, I'm referring to the fact that sustainable aviation fuel will be driving an increase on the demand in the years to come. And despite the sustainability may not be making the headlines on the news the same way it was some time ago, the sustainability industry is still today on a global base for the amount of investment it attracts the second after the ICT industry. And the proof of that is, for example, that in the COP Summit in Brazil, 23 countries have committed to quadruple their consumption of, let's say, biofuels or e-fuels by 2035. So it's a business which is insisting in an area which -- where demand will be growing, and we are well positioned -- competitively positioned today to capture those benefits while we keep on working to potential future investment to expand our presence there. And biorefining, well, it's about Leuna. We are continuing to execute in a disciplined way our operational and commercial ramp-up of the facility. We'll be sharing more during our next call, but this is an entry into a new market. It's a market that today is not supported by mandate or any regulation poorly demand. Still, we are confident we can build a valuable business there because of the strength of our valuable proposition and because of the scale of the opportunity pipeline we have ahead. But also in this space, 2 weeks ago, Europe has issued the bioeconomy directive that talks about creating really mandates, for example, certain quantity of bioplastic to be from renewable sources and so on. Would this come, it would be a further catalyst and amplifier of what we are doing. So -- and to recap, we have businesses with different growth profile with different, I would say, CapEx intensity when it's about investing to capture further opportunity, but also it is businesses where we have concrete growth opportunities in the, let's say, next couple of years or so without the need of any significant further capital investment just on the back of what has been invested that now we are working to capture as a value. So -- and to finish, this is a slide you may have seen a number of times in our presentations. It indicates the priorities. These are consistent priorities within our organization. Improving competitiveness is the foundation of everything we do. And this is what we are working actively upon to perform in a market like it has been 2025 so far, which proved to be pretty volatile and challenging. But moreover, the work we are doing now will ensure that we are going to be capturing our fair share or more than our fair share of the growth that will come when the economic cycle will turn. We have been talking about focused growth. I trust you will see through what we have presented before, also through the evolution of our portfolio, how we are setting the base for the UPM of the future to grow top and bottom line consistently and profitably. We have always talked about our businesses or the ambition for our businesses to be world-class businesses, meaning that UPM should provide the best condition for every business being the best in the industry or at least at par with the best. This is what we are working upon. Every one of our businesses is working upon. But also whether it is the joint venture that we have talked about now or whether it is the strategic review of plywood, we continue to assess the opportunities that, let's say, the market or the economy can offer for creating value for the businesses through it shareholder value. I would say this concludes my presentation. I would be happy to invite Tapio to join me here. And together, we'll be happy to take your questions.

[Operator Instructions] The next question comes from Reinhardt van der Walt from Bank of America.

Congratulations on the agreement. I just want to see what your thinking is now around capital allocation because it sounds like your view is that the portfolio is in a good place that you've got the right kind of assets that are sort of future-proof. But we've got a decent amount of potential cash proceeds coming in. Is the focus here on maybe looking at more strategic investment opportunities? Or is it on shareholder returns? Or should we think about this as maybe a natural de-gearing of the balance sheet?

Okay. Reinhardt, well, look, here, we're talking about a nonbinding agreement. So we are initiating a journey today that we trust through the work we will be doing over the next months will lead us to a positive transaction at the end of next year. Let me also put beside that, that we are doing this strategic review about plywood that I talked about. So there are over the next months, a pretty different number of situations that can materialize. But at this point in time, I mean, our focus at least as a management is not about where to allocate the money or how to spend money. We do not have yet our focuses completely on, let's say, a positive value-accretive conclusion of these 2 strategic initiatives, which means that this will be a more, let's say, relevant question further ahead in time. And surely, a robust balance sheet remains an option.

Understood. Very helpful. And maybe just one follow-up, the pension transfer. Can you just give us a sense of what the pension transfer approval process looks like, where you need to get approvals and the key stakeholders that are going to be involved? Obviously, just conscious that from the pension holders' point of view, the counterparty obviously changes quite a fair bit now.

Yes. Maybe if I'll take that. So again, let's say, figures, first of all, that I've mentioned then referred to the balance sheet value in the end of June this year. And then the kind of details of transferring the pensions to the joint venture still to be worked upon. Principle, of course, is that pension sort of liability that pertains to the business of Communication Papers, it does transfer by law to the joint venture, that receives those businesses. But then, let's say, the details of that and approvals needed for that, that is still under those more detailed negotiations that will happen between now and the definitive agreements.

Understood. Helpful.

The next question comes from Ioannis Masvoulas from Morgan Stanley.

Well done on the proposed transaction. My first question is on antitrust aspects of the proposed JV. As the business will have significant market shares across both coated wood-free and coated mechanical paper, could that suggests potential for significant remedies to overcome any antitrust considerations? Could that involve asset sales or a more accelerated closure of mills? And do you have a sense on what sort of EBITDA impact we could expect from that relative to the pro forma numbers you've articulated?

Great. I'd like to bring 2 angles here into the answer to your question. Thanks for it, by the way. First one is that market share as well as capacity share in our view, has a limited, how can I say, value and reference because market share, for example, it changes very much depending on by country, changes very much by product grade. And by the way, within the industry, there is a fair amount of substitution between grades possible. It changes over time, for example. So talking about market share within a certain geographical profile, it has a very limited value, at least in our view. Besides that, let's not forget that this is a heavily oversupplied industry, which scrambled quite a few of the traditional logics here with significant or anyway material imports from other parts of Europe -- of the world and into Europe. So our view is that there are many more aspects to be taken into consideration beside and beyond market share. So this is in one side. On the other side, we do see this transaction as coming at the intersection of different things. One is competitiveness. The other one is resilience. The third one is sustainability. These 3 and some more, let's say, elements are indicated as key pillars in the Draghi report. And the Draghi report has inspired directions that have been taken by European Commission in a number of different areas. So with this, we do not anticipate decisions from the commission. We will be working openly with the commission, sharing all the information that is required, working with them, explaining the situation. But equally, today, we stay positive about the outcome, even though we do not anticipate that. And surely, we don't anticipate or speculate on mitigations, not at this point in time definitely.

Okay. That's very clear. And the second question around the balance sheet of the JV. So my understanding is that there will be debt raised at the JV level of EUR 750 million to pay the 2 partners. And based on the pro forma EBITDA, that's around 2.5x leverage pre-synergies. Do you feel that's the right level of leverage for the new entity given the structural decline in overcapacity in the graphic paper market? And then around the EUR 750 million, is that first tranche of debt recourse to the JV partners or not?

Maybe if I'll comment on that, well, maybe to start from the end. So there -- as I said, there will be no recourse to the shareholders from the joint venture. So it will raise its financing independently. We have, I would say, good confidence based on discussions that we have had with banks to date that the credit of the joint venture will sort of facilitate this level of financing, may land, like you mentioned, to that sort of territory, 2.5x EBITDA at the time of closing when the joint venture is initiated. I would say that the joint venture's intention would be to keep a strong balance sheet then going forward. So likely then also kind of that ratio improving over time as the synergies are implemented, and there will be some significant positive cash flow coming from that.

The next question comes from Lars Kjellberg from Stifel.

Coming back a bit to the synergies that you spoke to and you're talking to sustained higher capacity utilization rates. So the question really being, how much of these synergies will be generated from you taking out capacity to enable you to run your machines? And the second question I really have is about there are some lines of Jamsankoski and Nordland that are not included in this. So how do we -- how should we think about that potential dissynergies that these mills now broadly speaking will be folded into the JV out of your control?

Yes. I mean about the first question and the operating rate, I believe this is one of the things that the joint venture can enable at a point or in a scale that none of the 2 companies separately can enable through our restructuring. I believe the joint venture having a larger asset portfolio will have much more flexibility in terms, as I said, allocating volumes, allocating -- optimizing product ranges and so on. So increasing operating rate at levels to support business efficiency and competitiveness is exactly a key pillar of this plan. Then when it comes to the second question, you mentioned Jamsankoski. I would even open up there is another couple of sites if we want where we have, let's say, the presence in the same area of different business areas. But the reality is that within the UPM business, we have been operating -- it's key in our operating model with businesses which are almost completely independent. So even if in a number of areas, there are a number of, let's say, presence from different businesses, they are pretty independent already. Of course, there are adjacencies and there are some dependencies, and this is exactly part of the work that we will be doing starting today to get to a proper separation of the 2 businesses to ensure what was mentioned before that the joint venture will be able to act in a completely independent way. Of course, the separation can imply some separation cost or carve-out cost, but it's way too soon to speculate on that. I would just restart and restate that we are not building a new architecture. It's potentially pushing a bit further an operating model that we have right now based on the -- this business is operating almost independently.

And like I said, there is basically in the next phase, a kind of stage where the more detailed agreements on those shared sites will be negotiated and based on that, the site synergies can be shared. We have experienced that from the past as well already how that can be done.

And just one more question, if I may. On your pulp exposure will the cost increase as you exit this. Will you have any sort of contractual agreements to supply pulp into these assets, which would potentially enable you to have a regular customer base outside China in a better way, including a Southeast short position in Europe?

Well, again, those are the, let's say, arrangements that are now then to be negotiated. And again, from the joint ventures point of view in a sense to find a competitive arrangement going forward.

The next question comes from Cole Hathorn from Jefferies.

I'd just like to follow up on the free cash flow. I mean, strategically, the JV and the synergies and how you're going to run it makes a lot of sense. I'd just like to understand the implications for the free cash flow of UPM going forward. Can you give any color on how much free cash flow your Communication Paper division is generating or how much CapEx you spend in that division? And the reason I ask is because there will be a chunk of debt allocated to the new JV and you're going to be trying to understand how much dividend you're going to get back every single year versus free cash flow you're losing by giving up the Communication Paper division now. So I'm just trying to understand what the impact on the free cash flow is going to be.

Well, let's say, obviously, early to comment on any numbers in a sense, looking at the joint venture as such. But we have obviously kept the CapEx level quite low in the communication papers going -- looking backwards in history, given that we have been sort of consolidating the business around the best assets, and that will continue, obviously be one sort of source of free cash flow for the joint venture as well. And again, of course, let's say, looking at the joint venture point of view in a sense or the merit of the joint venture, given that now we have a larger portfolio of mills to work with, then obviously, we should be and are aiming to sort of improve the free cash flow of that portfolio when it's combined in the joint venture. Then eventually, how it's shared with the shareholders, then that, as said, also will be the function of kind of the financial standing going forward. But that's, in a sense, where more cash flow will be generated is through the synergies from the larger portfolio of graphic paper mills and machines.

Maybe if I just follow up on that. I mean, you're pulling out cash by raising debt in that JV initially to help yourselves pay down debt in the UPM entity, and there will be questions of what you do with that 600 million cash that you're getting out. But in the JV, has there been any discussion of how the initial dividends will come back to UPM and Sappi? Will it be a couple of years of that JV actually focusing on the debt paydown and reducing the pension liabilities and then kind of starting dividends to UPM so that you get some cash flow from the JV in kind of year 2, 3? Or will you get it year 1 already? I'm just wondering if there's been any discussions there?

Well, I'd say without going too much into details, yet to be sort of determined. But the principle is, of course, in the beginning, there is going to be some upfront cost in terms of setting up the joint venture, starting, let's say, the actions to implement the synergies. But let's say, with the payback of those, then the sort of financial standing will improve. And then from that, also the capacity to distribute cash to the shareholders will sort of start to kick in.

The next question comes from Charlie Muir-Sands from BNP Paribas.

Just following up on the last answer to start with. You mentioned some initial restructuring costs. I just wondered if you could give us any kind of indication about how much you'd anticipate the JV incurring there? Secondly, you said you'd have some initial discussions with banks regarding that leverage. I just wondered if you could confirm that you think you'll be able to -- if the JV will be able to borrow at an investment-grade interest rate? And then finally, I just wondered if you had considered any other kind of deal structures before you settled on this 50-50 JV and whether those were particularly ruled out because they didn't have the merits of this deal in any particular shape or form?

Maybe if I'll start with the first couple of points. So again, early days to comment any figures or expectations on that front. And I would say also as far as financing is concerned, then we will have more to say or tell about that when we have, let's say, completed the discussions and agreements with the banks at the time of the definitive agreements. But as said, let's say, we think that -- and our, let's say, partners on that side think that, let's say, the financing capacity of the joint venture, as we see it now is quite good.

And on the deal part, I mean -- I believe Sappi was for what I said at the beginning, the ideal partner in this deal. So this is why we have been working together. And when it comes to the construction 50-50, this is what we felt was the best solution considering a number of different elements from what every party was contributing to a number of other metrics. So this is the best deal we could imagine or the deal that will create more value through the synergies that it will be able to unlock. We did not see the similar potential through other deals, neither we seek it.

The next question comes from Pallav Mittal from Barclays.

So a follow-up on the dividend. Is there a minimum payout ratio or a time line for when regular dividends are expected? Just trying to understand it given the initial target leverage of 2.5x. And also, will the JV have any covenants or restrictions that could impact these dividend payments to UPM and Sappi?

Well, again, those details are sort of early to comment on. I think there is kind of a shared view in a sense that if the sort of initial leverage would land in that sort of 2.5 area, which, let's say, we are looking at now, then over time, we would want to keep the sort of balance sheet in a good shape, have strengthened the balance sheet going forward for the joint venture to sort of secure financing in the future years as well. So that obviously will be one key sort of consideration in thinking about then the level and timing of eventual distribution of dividends.

Sure. And if I can just ask one more. So you have mentioned that either shareholder can initiate a divestment 3 years after closing. So what are the likely scenarios for this exit? And how would this process be managed to protect value for both parties?

Well, again, early perhaps to speculate what the sort of options available or alternatives available at that time. There are still several years sort of ahead of us. But again, there are several alternatives, either party can sort of initiate the process. The other party can follow or stay and both in a sense, can choose to stay. So in that sense, the alternatives are there to then to sort of decide what is the best way to create value.

The next question comes from Saul Casadio from M.

Just a couple of clarification. Going back to the funding question, do you already have a sense in which market you're going to fund the newco? Is it going to be the banking market, the bond market?

Let's say, all options are on the table. So obviously, that planning is in the works at the moment. And as said by the time we are ready with the final agreements, then we will be ready with the financing plans and agreements as well. So then we'll have more to tell.

Okay. Okay. And just one clarification on the numbers. The assets that are going to be contributed in LTM numbers are generating what you call a comparable EBIT of EUR 180 million, but an operating profit of EUR 30 million. What is the delta between these 2 numbers?

Well, EUR 180 million is the comparable EBIT. Then if you are looking at, let's say, IFRS operating profit, then there are the sort of items impacting comparability in between, which have to do with the restructurings in the business.

Sorry, the operating profit is the kind of the LTM EBIT and the comparable is a pro forma for the new structure. To be honest, I'm not clear about the delta between these 2 numbers. It's quite a big delta. So I just want you to clarify that.

So here, you have EUR 180 million comparable EBIT LTM for Communication Papers and then basically, that comparable number does not include the items affecting comparability, which would then include any sort of restructuring costs or write-offs related to restructuring that have happened during that time.

Okay. Okay. And I understand that. And sorry, I think I have another couple of questions. In the liabilities, the pension liabilities of EUR 406 million that you're transferring, that's the net pension liability or is the gross number?

That is our liability in the UPM balance sheet.

Okay. Will you also transfer some pension assets? So I'm just trying to get to the net number, net liability.

Well, the liabilities, I mean that is including any assets that we have, sort of the -- sort of IFRS value and sort of pension liability and any sort of assets that there may be, they transfer with the business that they pertain to.

Okay. So that's the net -- effectively the net number, the EUR 406 million.

Yes.

Okay. And in terms of synergies, that EUR 100 million is a big number. Can you just really roughly explain the main sources for those synergies?

Sorry, can you repeat the question, please?

I mean the EUR 100 million of synergies is a big number. I just wanted to have a sense of what are the main sources where are they going to come from?

It's -- again, we can go back a little bit, but we have indicated the main items contributing to these synergies are at the bottom of this slide here, asset optimization, product range rationalization, eliminating duplications, optimization across a number of different areas. It's a significant numbers. It's also type of activities, which are not new to this business, which has been I would say, in some form of reshaping, resizing or restructuring now for almost 20 years. So there's a well defined and familiar toolbox in these cases. So that's through these actions and they become numbers. I thank you all for your presence and for your questions. I'm mindful of time and that we are a bit over time. So once again, thank you for your participation. If there are questions which have been unanswered due to time, I invite you to reach our Investor Relations team that will provide the answer to the best of our capabilities. Thank you again. Have a nice day.