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

Good afternoon, everybody. Welcome to this UPM webcast on our growth and innovation in the specialty packaging materials businesses. My name is Mika Mikkola. I'm the Head of Investor Relations here at UPM. And this webcast is part of the series of webcasts that focus on different businesses in UPM and different other important topics as well. In September last year, we hosted the forest and energy webcast. In December, we discussed growth in pulp as well as our big project in Uruguay. UPM is, like you know, in intensive growth phase at the moment, when the pulp mill in Uruguay will start up in the very near future, that will grow our pulp business by more than 50%. Pretty much on a similar time frame, the Olkiluoto #3 nuclear power plant start-up will increase our energy business areas volumes by nearly 50% and our biochemical refinery project in Leuna in Germany which will start up by the end of this year will introduce a completely new growth business to our portfolio. Today, we will focus in our next spearhead for growth, the specialty packaging materials businesses. We will cover today UPM Specialty Papers and UPM Raflatac. Both of these businesses have achieved remarkable growth in sales and earnings over the past several years and we aim to continue on this growth path. Both businesses operate in fast-growing niche parts of the packaging materials space. Both are competitive and have strong market positions in their businesses. Market growth is driven by consumer megatrends and this growth is supported by the drive for sustainable packaging. Innovation and expansion to new product areas is adding to our growth opportunities. Even though both businesses operate partly in the same value chain, they are separate businesses and operate on a arm's length principle according to UPM's operating model. Today, we will have 2 presentations. First, Jaakko Nikkila, the Executive Vice President of UPM Specialty Papers, will cover his business; and then we will have a presentation by Antti Jaaskelainen, the Executive Vice President of UPM Raflatac. And after these 2 presentations, we will have a Q&A session covering both business areas. You can write your questions in the user interface and that's pretty much it. Let's get going. And our first presentation is by Jaakko Nikkila, covering UPM Specialty Papers.

All right. So good afternoon. My name is Jaakko Nikkila and I'm heading UPM Specialty Papers and ready to give you an update on our business area. Specialty Papers consists of several different businesses. We are a global market leader in label and release papers. We operate globally. We have quite a wide production platform also for these products and have been around for many years serving food and beverage industries and logistics and industrial -- different industrial end users. Packaging Paper business is a growing, a bit newer business in our portfolio, where we are focusing especially on flexible packaging papers and for food packaging and consumer packaging and also different industrial end users. And then the third area is fine papers in Asia. We are producing those in China and both office papers and graphic papers and selling those in China and Asian markets. Label papers, label and release is a global business. Packaging is becoming global. It's more Europe-centered at the moment and then this fine papers is mainly in Asia. As for last year numbers. So sales was close to EUR 1.7 billion, EBITDA was EUR 130 million and return on capital employed a bit over 17%. And then there are these graphs on the right-hand side, illustrating how the sales is distributed by regions, APAC being roughly half and then EMEA, North America, Latin America, the other half. And then sales by product, they are label -- or the specialty papers like we call this Label release and packaging. So that is more than half and then fine is a bit less than half. This graph figures are based on year '21, which is a bit more illustrative as last year, we had a long strike in Finland, which distorted the kind of split also. As for the business, so long-term trends are supporting our business like Mika also mentioned in the beginning, there has been some short-term volatility, but these long-term trends, sustainability and increasing sustainability awareness that is very much in the core. We see it also happening impacting greatly the kind of demand and the pull what is coming from the market. Sustainability regulation getting tighter and especially in Europe, but also in other markets. And we have good access to China market also and understanding what is happening over there. So also a relevant topic in all regions a bit in a different stage. Urbanization, growing middle class, so this is especially in Asia and then connected naturally this Asian economic growth. Growth in e-commerce so that we saw impacting our Label business, especially during the COVID years, but this is expected to continue. And then the aging population, single households, so that is a kind of general trend in the more mature markets. As for the short-term volatility, so there, these COVID years kind of caused quite a turbulent environment. There was ups and downs during these years and what we are now experiencing is this sort of inventory destocking still taking place. And then kind of being able to read what is actually the current demand in the market is a bit more difficult than normally. But like I said, we believe that these long-term trends, they are supporting the business. And good to remember from the right-hand side of the graph that this essential goods, food, pharma, retail, home and personal care, so these are very resilient regarding their demand. And then there are these applications which are kind of growing much faster than the average and logistics and e-commerce being one of those examples. Then for the business areas where we are in. So we see growth opportunities, especially in the Label release and packaging for the Label or the release part of the business, which is the liner material. So there, we are estimating that in the coming years, global growth would be roughly 4% per year. And then on the Label, the phase materials. So they're estimating some 2% to 3% growth. And then on the packaging papers, especially on the flexible packaging papers, so there, paper is playing quite a small role in the whole market and plastics are kind of the majority of the material used in this flexible packaging area. And there, we see at least this 2% to 4% growth opportunity in those segments where we are active. And we have a very selective approach towards this area and I will explain a bit later what all we have been doing on that area. And then for the fine paper, so not a growth market in APAC necessarily anymore in office papers. It has been growing some 1% to 2%. Now we might be facing a moment that is then starting to stabilize. And in graphic papers especially it's not a growth market, but it's stable or declining. But we are a small player in APAC graphic markets, maybe 1% share. So we can be very focused also in that market. And so our position is totally different as compared to communication papers in Europe, as an example. And then in the office papers, we have well-established cut size copy paper brands, many of them being UPM brands, we have a good market share in China and other markets in APAC. This graph is illustrating the kind of strategy and focus areas. They are not the same size, each of them, like described in this graph. But earlier, you saw already how they are distributed. Starting from the fine paper. So there, it's more about utilizing the existing capacity. We are not targeting to grow. We are targeting to kind of optimize the result based on the assets what we have dedicated for this market. We have a good position, like said and strong brands, which are supporting our business. We have been around for more than 20 years. Our partners know us very well. We have been growing together with our partners. And one example of an entry barrier for the cut size business would be the distribution network what we have quite well-established in APAC and China, especially. Then for the face papers, it's more about the value creation and extending also our product portfolio and also based on the assets what we have in the communication papers business area. So we, at Specialty Papers are able to utilize the assets from the other business area in order to support our growth. And also in order for us to be able to utilize our own assets then more for this higher value-add products and developing our portfolio to those segments where the entry barriers are even higher. And then for the release papers and really base paper, so -- or release base papers, especially we do not siliconize ourselves. So we are serving the market both for the self-adhesive label, but then for many other segments where siliconized papers are then being used. And our recent investments have been mainly focusing on this segment. And as for the R&D work, so in recent years, it has been mainly focusing on this packaging segment and especially the barrier grades over there. Strategic priorities. This we have been using a lot internally, especially that let's keep it simple and it's about this profitable growth based on commercial success that we are the trusted partner and we grow with our partners. We are the reliable, predictable player in the market. And then for the developing new -- so new businesses, new products, co-creation is something that we have learned in the recent years that especially in this packaging segment, it's better to have good partners for the development and make sure that don't try to do it alone, but rather with good partners. And then this more about the DNA of UPM efficient and cost competitive operating model. So there the focus will always be aiming for lean and efficient way of operating in every part of the organization. Digitalization, playing a big role in that priority. And I was visiting China for the first time in 3 years just a couple of weeks ago and I was happy to see how the digitalization has been proceeding at our mill in China. So great success cases and great, great learnings to be shared with the other mills also. Then for the special by nature, this is the customer promise what we have given and the commitment to the industry cornerstones over there being sustainability and being able to offer these renewable recyclable papers being kind of responsible in all our operations. Co-creation, like mentioned, related to the packaging development especially, so this is something that we have spent a lot of time. We have learned a lot and we have learned also that this is the only way to be successful in that specific segment and surely can support the other businesses also. Trust is about keeping your promises and being long term. I think it helps to be part of a financially strong UPM so that we are -- we have been able to invest. We have been investing. We have been growing with our customers and supporting those businesses and segments which we have selected and where we have been focusing on. And then the core is naturally the organization and the people, having passionate people globally, being able to serve global market and then being able to trust that people do their very best and want to develop and succeed. So that is the promise also to our customers. This graph is about specialty grade. So excluding the fine -- the APAC fine paper business, we don't report this kind of normally when we are reporting the BA result. But just to kind of highlight that inside the business area Specialty Papers, we have been growing with the selected segments. It has been some 8% growth in volume and turnover per year and then some 10% growth per year in the EBITDA values or profitability. And this has been happening inside the BA, the fine paper business, like said, we are not targeting growth. The deliveries and turnover has been relatively stable. Profitability has been variable. And here, the growth focus has been and this is what we have delivered. Similarly here, year '22 is excluded because it was a bit non-normal year because of this strike in Finland. But like showed in the beginning that the performance was still good according to our targets during last year. And then for the future success. So this flexible production platform, what I mentioned that we are able to utilize also the communication papers mills, but then also developing our own assets so that we are able to produce several different grades on several different lines so that we either have backups for different products or then we are able to also choose and select which products to be produced on different lines. Product development, very topical always in the different specialty businesses. And even if our focus has mainly been on the packaging side, so it doesn't mean that we wouldn't have been working also on the Label and release side developing new grades and bringing more and new sustainable solutions to the industry. So still related to the sustainability, which is kind of like a foundation for everything what we do. There is also reasons why it's becoming more and more important in this industry also. There is this need for resource efficiency. Consumers are demanding more sustainable and easy to recycle products. And then there is the regulatory pressure also which is driving this development. And then from Specialty Paper side. So yes, we are able to offer this non-fossil-based materials, which are renewable. We are developing a portfolio which would be broad and designed for recycling. This co-creation partnership, so that is something that we have seen functioning very well, both in packaging and Label and then this carbon footprint reduction. So that is ongoing work. And one example being this power to heat boilers that we have invested to our Finnish and German mills so that we are able to generate steam based on green power and reducing our CO2 footprint. Maybe no need to go too much into details related to this graph, but it's just one estimation of how this really liner segments are kind of distributed related to the whole market and industry. So label stock being the biggest end-use area, tapes, industrial, hygiene, graphic films, so forth, are consuming release liner papers. We are active, especially in label stock tapes, industrial, medical and also graphics, so less so in hygiene and envelopes, food and bakery. And then for the different materials and substrates, so there Glassine is the biggest item, SEK for U.S. markets, but then there are other papers also, CC Clay coated papers and then different filmic materials and film-coated papers. So we have good opportunities also to expand our offering when for example, replacing this PE-coated papers. As for flexible packaging, so like mentioned already that it is a huge, huge market where this flexible packaging cover some half of the different food packaging. And this graph is illustrating the food packaging in Europe. So you can see that there is many other packaging materials and solutions. But then we are focusing on the flexible packaging. And there plastics is playing the major role still and there we see a good opportunity when also the brand owners are becoming more and more active in replacing fossil-based materials with renewable materials. Related to our own product offering in this demanding barrier paper applications. So we have standard barrier products called Asendo and Prego and these are good as they are for certain kind of more standard applications and then they are good base papers for further conversion when our customers want to kind of develop them further into higher barrier products. Then this Confidio product range, which is we call advanced barrier products. So there, the kind of extremely interesting nuance is that it's a heat-sealable product, which we have now launched during last year and we expect quite interesting opportunities for this heat-sealability, which naturally is quite difficult to attain for paper materials. And then these high and ultra-high barrier solutions. So this is a co-created solution. I will explain a bit more in this next slide. So just highlighting that it's always a co-creation when these sorts of solutions are being created. And this time, it was with BOBST, who's kind of well-known machine supplier in the industry and Michelman, who is a well-known chemical supplier in the industry. And together us 3, based on the paper that we have produced, so then have developed a solution that is then being able to last this long shelf-life products. Soups, for example, spices, coffee, milk powder, that sort of products, which then cannot take moisture in and should not let moisture out, should keep the aromas in and then this kind of very thin metal layer that is in the paper offering this barrier property. So that is -- has a thickness of like 1,000 of thickness of hair. So we are talking about really very minimal amounts of this barrier coating. And then this product is recyclable in normal paper streams. So we are able to offer brand owners well recyclable products. The recycling stream is already existing and this is replacing this kind of filmic or fossil-based materials, which tend to be also then pretty difficult to recycle when they are kind of multilayer, not mono-materials. About our global presence and reach. So this is just highlighting that, yes, we are able to serve global markets or in that other mills what we have and they are serving global markets, except for the fine papers, which is then concentrating on the APAC market. Like said, we have been in China for more than 20 years, 25 years this year, in fact. And then we have sales offices, supply chain offices, service centers in different parts of the world. And we are utilizing 2 different R&D centers of UPM, one in Finland and the other one in China. So good capabilities to develop our business further. And then this highlighting that, yes, we have been growing. We have received the investment money from the company also the existing products, the businesses started in the early '80s and there has been paper machine investments during the years. And now during these past 10 years, company has invested more than EUR 0.5 billion into this business and we have been then delivering the results. And naturally now considering all the time that what could be the next growth step and how to guarantee that that would be also successful. So as for how to continue growing, so short and midterm, it's more about scaling up our previous investments, developing the portfolio further commercializing these new products and then scaling up our business with the help of communication papers assets. And then on mid- to long term, it's about these more strategic steps that how to increase our capacity in the products, especially where the entry barrier is high and growth potential is significant. And as a summary, overall. So yes, global trends, long-term trends are supporting our business even if there is some volatility at the moment. This sustainability awareness and tightening regulation is driving the development in the market for more sustainable packaging and paper has a great fit for that. We have very clear strategic priorities, good cornerstones, strong cornerstones for coming years to ensure that profitable growth will continue. And then this commercialization of new products, scaling up the investments to support our growth and then this active assessment of alternative new future investments for specialty grades. So that's ongoing. And that's all from my side.

Thank you, Jaakko. You will have a opportunity to ask questions from Jaakko later on in this event, but now we will move on to the second presentation by Antti Jaaskelainen about UPM Raflatac.

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Good afternoon, everyone. My name is Antti Jaaskelainen. I'm leading the UPM Raflatac business area. And in my presentation, I'll start with a short recap of what we do in Raflatac, what our product is, what our business is about. Then I'll go through the market characteristics and trends both in the short and long term, of course, our strategy and performance. And then I'll finish off with some examples of our sustainability development, our new product development and some of our growth initiatives. Here, you can see various end users of our products, the label stock. Almost every single physical product in the world has a label in it and many of them are [indiscernible] self-adhesive labels. There are, of course, other labeling technologies as well. But the end users are really varied. And the big volumes go, for example, to food and beverage and daily consumer goods like personal care, homecare, but then there are also very many attractive specialty areas, for example, pharma or security and brand protection. And to be very concrete to give an example what the Raflatac main product is. It is, in simple terms, multilayer laminated sandwich structure. So we have adhesive label stock. And it takes a very different kind of adhesive or face material when these kinds of products are applied to different end users. So a label in the frozen food has as many different requirements than a label in a car tire or in the logistics industry. So this is the product that we do. And to recap our value chain position continuing from Jaakko's presentation just a moment ago. So we are a converter. We buy papers, films, silicones, adhesives, raw materials and we are the assembly point, if you will, to this -- laminate these structures. We also act as a logistics integrator in this value chain. So we take in raw materials in full containers with a relatively long lead times. And then forward from us, we provide relatively quick, even just-in-time deliveries in small quantities. So in addition to being -- creating value by matching the various end-use needs with the needed adhesive chemistry and raw material expertise, we also provide -- act as a logistics service provider in effect in this chain. So this is the recap of our business. Raflatac is a global organization, global business. So we have 56 nationalities, a little bit more than 3,300 colleagues working in Raflatac. We are present in all continents and in some 50 sites. The label stock market is a growing market, so it has grown to be over EUR 10 billion globally already. And on average, we expect 3% to 4% growth. This is private consumption driven mostly, even though they are, of course, industrial uses as well. Value-wise, this is the largest of the labeling technologies already, the sleeve, the direct print or the wet glue labeling, they are very much present still. But from a growth point of view, label stock has been very attractive. And also, if we look at all the self-adhesive materials in different markets, there, of course, there are many different kind of products where adhesives are applied on a real-to-real products, for example, tapes and graphics and the likes. So the world and the market space of self-adhesive materials is much larger than the label stock that is our focus. But this is a healthy market with growth prospects in the long term. Jaakko already mentioned that there is volatility in the short term and it has been kind of publicly public information on the industry statistics, for example, that there is a destocking ongoing in the packaging labeling chains. And we did see it in the end of last year and now in Q1, we still see it. So this may be of interest also for the audience. So maybe I'll say a few words about that. So the inventory buildup that took place somewhere during the summer, maybe towards autumn in '22 was driven by supply challenges in the industry. Also as prices and costs with the big cost increases were going up and back then, also the cost of funding was low. So it has been a logical step for many actors in the branded consumer goods in the forward of our value chain to increase the amount of safety stocks back then. Now when supply situation in the industry has normalized and logistics capabilities have normalized, which is a good thing for the industry in the long-term and also there are expectations of kind of cost price cycles turning as well, it has led to short-term situation where the stars are aligned for many actors in the chain to take down their inventory levels at the same time. And this is what we are seeing at the moment, especially in Europe. But by default, destocking is temporary. And in the long-term, this industry certainly has healthy prospects. And moving on to that in the label stock, what we have seen historically and what we believe in the future are these several growth drivers that do provide the healthy growth prospects. I'll specifically touch on 2 of these, what could be called the twin drivers of the packaging and also label industry. They are the sustainability trend and also the digitalization and e-commerce. So sustainable packaging where we have been working a lot on providing solutions. This is maybe in the early days, it was value-adding only or a niche where price premiums could be achieved, and we can still do that. But now clearly, sustainability trends are also driving good prospects for volume growth for label. And this we see in the recyclability of products. And our view is that the growth of rigid packaging, for example, daily consumer goods in the food industry, rigid plastics, rigid containers, the share of growth, share of these package types will be better in the future and maybe the plastic flexible packaging types of packages that have been the success story in the packaging industry in historical terms will be a little bit less. And obviously, rigid containers all need a label, they are label relevant categories. So we believe the sustainability trend will be positive for the industry. It will drive volume. It will drive value. And this is what we are very much investing and focusing on. I'll have some examples later on in this presentation. E-commerce growth and digitalization that has been a very positive market growth driver for this industry, maybe packaging overall and it continues to be. So this is -- we believe that this trend continues to provide growth. The existing trend of home deliveries, more labels, more boxes. This took a step-up in growth in the COVID years, but this continues. And now that the penetration of home delivery e-commerce comes to even more and more categories like daily consumer goods, food deliveries, this is clearly increasing the amount of deliveries and the amount of opportunities for label usage as well. And during COVID times, there was also new uses for label for hygiene purposes, ceiling, also providing consumers with the perception of safety and ceiling and these do seem to stay and in home deliveries, and these have been driving up the market for labeling. And this illustrative chart on the online share of online penetration of different kind of consumer goods categories and what is still sold in the traditional retail. The market may be different in different countries, U.S. versus Europe versus Asia. However, in the broad scheme of things, this is just underlining the point that the growth potential coming from digitalization and e-commerce home delivery is obviously not nearly exhausted. There's plenty of growth still to come as these very large daily consumer goods, food, home and personal care segments when the online penetration grows there, the amount of at least weekly, if not daily deliveries to homes has a lot of potential and that's potential for labor. On the Raflatac performance, we mostly look forward, but we can take one slide to look backwards as well. So with our mostly organic development, we have been able to increase our top line sales in -- between 2015 and 2022 from EUR 1.4 billion sales to approximately EUR 2 billion sales, which is roughly a 5% CAGR sales growth. At the same time, we have been able to improve our profitability and also capital efficiency and doubling roughly our EBIT and return on capital employed. And here, of course, this is some of several things, but our foundation is the operating model, global organization, global operating model, which we have put in place in 2016 where we try to combine both strength of global product lines and then the being close to customers locally in different countries and regions. And we have invested a lot in organizational capability, especially commercial ones, I would say we are proud of our traditional strength of being efficient in operations, running our supply chain sourcing and factories and we continue to do that. But also we have been achieving a step-up in our commercial capabilities and go-to-market approach. We have made investments into capacity, new coating lines, new distribution centers. Our capital intensity, obviously, is not so high as in some other UPM businesses, but I think we have had a meaningful capital and capacity improvement program ongoing for years and this has given us a very competitive operations platform globally. New product development, our mix of targeting faster growth in higher value-added categories and products where we also product features, service differentiation is a part of the competitive set-up, not only competing on price and cost. And then digitalization, both in our own internal efficiencies and in the customer engagement in our Raflatac portal and online ordering, all these kinds of things that our customers have been very happy about them and we continue to push this digitalization initiatives forward. So when we look forward, we, of course, want to continue our profitable growth and our strategy is simple going forward. So we have the foundation of our global operating model and strong common capabilities, of course, in UPM Raflatac, but starting with many of the strengths of the UPM group. And then we have our 3 priorities. So we continue to improve our customer reach. Commercial excellence, which means both quantity and quality. We want to have a good global service and distribution footprint. In the end, this is mostly a local business with a fragmented customer base in the sales and service side. Then the product portfolio. So I mentioned already providing more options for customers in the more differentiated part of the product spectrum. Sustainability leadership there is our uniqueness and where we consider to be clear leaders in the market. We aim to do more of this. And of course, wider product portfolio is something where we can also accelerate with acquisitions in addition to internal product development and R&D. And winning operations, productivity improvement every day in our factories and supply chain. And these fundamentals, we believe that we want to improve every day, every week, every year. Business cycles, raw material cycles, inventory cycles may come and go, but we believe that when we consistently improve on these fundamentals long term, we have good opportunities for profitable growth. Sustainability is at the core of our strategy, core of UPM strategy. And we have been at this for many years and this is deeply embedded in our organization and in our operations. And we call it a 360 approach to sustainability in UPM Raflatac. So of course, it starts with the strategy. It is a natural part to consider in all our activities. We don't anymore have a specific sustainability strategy because our sustainability is embedded in our normal business plans, business strategies and we take it into account and think about it in all aspects of our business. Responsible sourcing. We are, of course, as I said, we are -- our value chain position is such that we are a buyer of many materials. And for us, it's important to keep our suppliers, our raw material suppliers onboard and work together with them on sustainability because they have a big impact to our product. Sustainable operations in our own factories. We have a Biofore site program, that's the name of it, where we basically increased the share of renewable electricity, remove or reduce our kind of landfill waste, reduce emissions in our factories and have many different kind of KPIs to make our own operations more efficient and less CO2-emitting as possible. It's the same as for all UPM factories. Our products. I'll have some examples in a moment, but we have successfully launched created products that reduce our customers and end users carbon footprint or bring recycled or renewable materials into in the label industry. Services, we have our rough cycle recycling service for end users, customers. We have some 400 partners nowadays in this collection system, where we recycle the kind of laminate waste. Social responsibility programs, we are -- they are local, typically engaging in local communities where we operate under our Biofore share and care program. And then collaborations, we have a lot of very credible partners starting with the Carbon Trust and Ellen MacArthur Foundation, WWF, and U.S. Plastics Pact and these kinds of things where we also seek external verification and best practice and partners to our business. So it's a wide and holistic way how we deal with sustainability. And here, these are the couple of examples on the new product launches and we call this first to the world product launches because these are the sustainability innovations, we have been in the last couple of years been bringing to the industry as the first one. There may be some eager followers, but we have a pipeline of this first to the world. We're the first ones to bring a forest-based kind of film, non-fossil-based film material to the market, which is kind of unique that only UPM can do because it's the biofuels, UPM biofuels naphtha that is the raw material for this one. We were the first ones to bring recycled post-consumer recycled plastic materials to the plastic label market. And our latest one last year, which has created a lot of interest in many end users is the Ocean Action label where we provide kind of filmic label where the raw material is kind of ocean-bound -- traceable ocean on plastic from Asian beaches and rivers that is chemically then recycled on a mass balance basis for our products. So these are the kind of spearheads where we are the thought leader and kind of provide sustainable alternatives to the label industry. And these are obviously not only spearheads also leadership, but is, of course, a real business with the price premium. Then one case, which is a case of new product development, growth area and also sustainability is linerless labeling. So this is an area that's one of the most fastest-growing segments of this industry. Linerless by name means that this is a self-adhesive material with no liner in it. So in -- one could say that it's like a heat-sensitive direct thermal printed tape real. That is where the markets now are in retail logistics. But for many in the audience, you may have seen this in the -- many of the quick service restaurants where individual orders are marked by this kind of self-adhesive products. This took up in the quick service restaurants during the COVID times when people were ordering online and only picking up and everybody wanted to keep distance and there was still, obviously, a need to mark the different orders and not to get orders mixed up in a hamburger restaurant or in a coffee shop. This is a very good growing market because it's mostly not cannibalizing existing label markets, but it's a new use and we are seeing clearly high double-digit growth in these markets. And these end users, there will be probably more end users coming because of the convenience and efficiency and sustainability of this product. So we have started up last year, early last year, this come asset in Poland that we invested in, which is -- has capacity for growth in this linerless market and also a replicable model in a way that we first utilized our global distribution network from with this one asset, but hope to grow in the long term also in this business. And our product solution here has some unique things patented things in it as well that it's -- the benefits are clear for example, for a logistics provider, 40% less material than conventional label and 70% longer re-length in a quick service restaurant, for example, which obviously is easier to maintain and provides a lot of benefits in those places. Maybe I'll prevent one question that might come from the audience is that will this kind of cannibalize, for example, the release linerless business of specialty paper will this replace. This is not the case. So there's plenty of growth for traditional label with the Glassine or other backings in it. This is providing mostly new growth for the industry in new end users. So I would not be worried about the future of the Glassine business, for example, of UPM due to this. But this is an interesting positive development that has kind of a material savings and efficiency in it. It's an example. Then maybe last but not least, so we were last year announced in May and then closed in September the acquisition of AMC in Germany. We have 2 well-invested production sites in close to Hamburg and it's kind of medium-sized label materials company, 330 personnel and a bit north of EUR 100 million in sales. And this was half of this business is directly synergistic filmic label stock where we have operational synergies in sourcing, production, distribution sales, and this integration has been proceeding well, slightly ahead of plan. And then part of this company is providing us new opportunities widens -- according to our strategy, widens product portfolio and kind of increases the addressable market of UPM Raflatac. Also we have a stronger position in Central Europe and in the German market. After this, Germany is the single biggest level of stock market in Europe. And also there's some professional know-how adhesive technology and technical know-how that we acquired. The product line extensions or extension of our offering with this acquisition is the kind of graphics and then removal nodes and industrial products. And this graphic is -- it is a very, very close adjacency to label stock. So similar coaters or assets can produce the product and the end users are indoor and outdoor visual communication signage, car wrapping, these kinds of things, which is a EUR 4 billion global market with a healthy growth of 3% to 5% depending on the segment. And there are clearly operational synergies with label stock on sourcing and operations. And then similarly, the removable products. Operational synergies in sourcing and technology and several very differentiated niche opportunities for high value-added growth. So this is one example of us accelerating our growth and kind of widening our product portfolio a little bit faster than just relying on our own R&D. So as to summarize, the self-adhesive materials, they do have a healthy long-term growth prospects and multiple positive drivers. We have a significant destocking in the labeling value chain, especially in Europe taking place in the short-term. But by default, destocking is temporary. Sustainability, clearly a major trend in packaging in label stock and there's a need from consumers and brand owners and there's more to come from sustainability to the packaging industry and to us and we are excited about it. And we continue to lead the sustainability offering with our reduce, recycle, renew kind of categorization of our solutions to sustainable labeling beyond fossils. We are committed to be the first label materials company beyond for sales in line with the UPM mission. And as said, our strategy is simple. We pursue profitable growth through wider product portfolio, commercial excellence and continued improvement in productivity and efficiency every day and M&A being part of our toolbox for acceleration if opportunities arise. Thank you. This was the end of my presentation. And back to you, Mika.

Thank you, Antti. And welcome back. Now we are ready for the Q&A session, and I can see that you have already posted a number of questions to us and feel free to continue to do so. But we'll dive into the questions now. Jaakko and Antti, you both mentioned sustainability as a kind of long-term driver -- positive driver for the business. And here's the question, how does it impact on the pricing of the product or competitive advantage in your business areas? And I might add that is it even a kind of demand growth driver? So perhaps Antti first.

Well, if I can start. Today, when we look at our spearheads, some of which I mentioned there, we do have a premium pricing and premium margin for them and customers are willing to pay when the end use kind of finds it value-adding. So I think there was a saying in many of these material industries several years ago when the, I would say, the common wisdom was that you cannot get the price premium for sustainable products. It may be is still true in some segments, but we do see price premiums for this high value-added sustainability products in the niches where brand owners and value it. So it can happen. Then on your second question, can it drive also volume there, we do see that this recycling needs and importance of recycling will drive that kind of packaging types to faster growth that require labels. So for the overall packaging industry, I would not comment, but for the label relevant, more rigid containers that are easier to recycle and where recycling may start accelerating there, there can be a positive volume impact for label and label stock.

And Specialty Papers, it's yes, there are premiums available and also the sustainability has been evolving and changing during the years that what used to be kind of a premium earlier might be kind of a common standard today. But still that target is all the time moving and therefore, new requirements coming and then new capabilities for the premiums also coming. But then as for the growth, so I think this good example from sustainability-related growth is the flexible packaging, where there is the pull from the market when more sustainable beyond fossil materials are being seek for and fiber-based materials has a good opportunity there.

Basically, replacing plastic in some of the flexible packaging?

Yes, exactly. Exactly.

Another question. UPM operates in various niche specialty packaging markets. What is needed to be profitable and successful in the markets? Of course, you touched on this on the presentation. And what is the barrier to entry for competition? For instance, in Specialty Papers, converting traffic paper machines to compete with the business?

Right. It varies, so that what is the barrier and what builds the competitiveness. And for us also, businesses are in different stages. And some businesses we know better, some we are still learning. And then for any newcomer in those businesses where somebody else has been a long time, so they most likely are these areas where you are just kind of making the mistakes by yourself and then paying those learning bills. But then as for what is then the conversion of new lines into this business from the graphic paper side. So there similarly it's -- these tend to be quite small businesses. They tend to be quite small segments where Specialty Papers are being used. And for 2 large lines, it's quite a challenge to find this economy of scale and be able to operate efficiently because it's still this kind of basic rules apply that you have to be able to be efficient in what you produce and you have to be able to kind of limit your waste and you have to be able to price your costs and all that takes time to learn, and it takes time also to kind of be sure that you are all the time running in order to stay ahead of the game.

Antti, any comment, what makes us successful self-adhesive labels business?

Well, there are, of course, several factors, but I would say that in the more downstream conversion industries, if the question is about competitive advantage and entry barrier, it is less asset-specific or less kind of resource-specific, even though that has a role in the kind of converting industry as well. But here, the entry barriers or competitive advantage comes more from the serviceability having a kind of a wide distribution network and the reliability of quality and service day in day out. So we provide products to consumer goods industries where our product is actually typically a relatively small item in the total cost of a consumer product. However, the downstream industries factories will stop if they don't have labels. You can't ship consumer products without labels. And this makes the quality and reliability and kind of safety in that sense, extremely important for the brand owners. And having an asset and buying raw materials, somebody can be relatively quickly in the conversion business production wise. But can it be as reliable and as high quality as somebody who has optionality and redundancy in the system with many, many factories, many kind of suppliers, many distribution points. So this is one aspect, the reliability of service that is clearly an entry barrier and establishing a network like what we have is not -- takes decades to build. And then the other one is, of course, the -- going to the product adhesive and end-use understanding. So we literally operate with thousands of products or SKUs and with multiple end uses. So being able to provide the right kind of functionality to each end user and is something where you also need a little bit of scale and breadth of the organization. So apologies for a long answer, but this is not a single machine asset that brings the entry barrier or the competitive advantage. It is the organizational, the capability to run a complex system reliably every day.

Right. This -- I think this next question is for Jaakko, but probably is relevant for Antti as well. So in both of your presentations, you talked about e-commerce and logistics as kind of drivers and key end users. So what kind of visibility do you have to the kind of future growth forecasts, especially Jaakko, you showed that the kind of expected growth is kind of higher than in many of the other?

Right. Yes. And we saw extremely high growth numbers during the COVID year. And I think consumers learned a lot during those years that it will remain a permanent trend. The growth numbers are more kind of becoming more to normal levels still being much higher than in many other segments where labels are being used. But then they are like I said, when visiting China, so it's amazing how fast-growing e-commerce market that still tends to be. And even if there has been kind of after this very strong growth years, some more moderate growth, but the expectations are still high and many of our customers are investing in the capabilities to serve that market.

Yes. Similarly, I mean, we, of course, if the question is that how good handle we have on the growth prospects. So of course, we rely on some of the market forecasts that are publicly available and people use. And this e-commerce growth volumes home delivery, it's a quite widely researched area. But we, of course, have through our customers and end users also direct contact to these big operators in this home delivery business. In a way, there are some countries where half of the packages that arrive in people's homes have a Raflatac label in them. So we also have a direct view on the thinking of these companies and how to develop and the role of label goes there and will remain kind of -- have a positive outlook on that.

Perhaps a follow-up question, again, on e-commerce and logistics. So what kind of share is it, for instance, specialty, in the specialty grades how big a part of the business is it roughly?

Well, it impacts naturally both the liner and the face material still kind of not the main application. It's in -- definitely in double-digits already, but also so that a little bit depending on the markets. In some markets, quite standard products are being used from kind of release liner point of view in some markets, it's really tailored for those applications specifically. So a bit difficult also to say that which volumes are going into that, but still clearly becoming more and more significant.

Yes, maybe on top of my head, I may don't have the exact figures here, but if a rough kind of illustration is allowed here. So of course, regarding the discussion of the e-commerce growth driver, one might get the perception that it is like half of the label market or something like that. It is not. It is somewhere between above 10%, but clearly less than 20% of the label market. However, in those years when it has been growing double-digit and then our estimation is that the whole market is 3% to 4%. So there's a lot of labeling going into other areas, the primary label and the products that remains to be the majority of volume. But just pure math tells that maybe there are years in history where especially in the years of fast e-commerce growth, where almost half of the growth in volume has come from home delivery. So it is a big driver, but let's remember that there are other healthy, good markets or resilient food, beverage markets for label still. So we should not be only focusing on the logistics market.

Yes, which is -- yes, which is vast majority of your product mix?

Yes. I mean, still a bigger chunk of our -- biggest chunk of our business is something else than e-commerce and that's a very healthy business as well.

Jaakko, in your presentation, you showed the kind of expected growth rates for release papers and face papers and there is a question, why is the release liner market growing faster than face paper market?

Yes. So this self-adhesive label being roughly half of the end uses where release liners are being used. That was the estimation there are then the tapes, the industrial hygiene, medical, all different applications where release liners are being used. And some of those segments are growing faster than the self-adhesive label. And then on the kind of face material side, then there the share of filmic face materials is also clearly larger than in the release liner materials. So these 2 items.

Again, for Jaakko, care to make a kind of estimate on what part of the flexible packaging market might be of the market that is currently made out of plastic? What is kind of realistic that could be, at some point, replaced by a fiber-based?

Right. It's a good question and extremely difficult to estimate and all our estimations, what we have in mind. And then when looking into the -- for example, the food industry in Europe. So then one can estimate that maybe 1/3 or a bit more could be then converted in the fiber-based materials. So -- but already then, it's like 0.5 million tonne market from kind of paper producers' point of view. But then that's Europe alone. And then China being maybe 3, how many times larger than the European market and then similarly in the Americas. So clearly, a significant opportunity, even if we would be using quite modest numbers.

Typically what's the kind of cost impact for the customer?

Also very much depending on what is the application, what we are replacing. And then the more and more it becomes a cost avoidance type of topic that the regulation puts pressure on -- more pressure on other materials. So then the kind of logic becomes better. But then also, the regulation really even if it would not be a cost avoidance, there is also certain rules that are being applied, which then requires quite a bit from -- naturally from the paper producer, but then also from the kind of fossil-based material producers. And like this one example of us being able to produce product which is recyclable in the normal paper stream as compared to fossil-based material, which is -- has many layers. And in that respect, doesn't fulfill this mono-material criteria even within that filmic material. So then it tends to be more difficult to recycle that sort of fossil-based materials. And then what is the benefit of paper industry is that we have the infrastructure in place for recycling. So therefore, we strongly believe on these opportunities.

Antti, you presented the kind of quite exciting linerless labels kind of entry and opportunity. And you also touched on the kind of release liner topic, but one of our audience wants to still ask that what is the limitation? Why not kind of further move into linerless labels?

Okay. So first of all, the printing technology, we -- what I was mentioning what our asset is something called direct thermal labeling. So the printing takes place with heat through the silicon layer. So by default, that technology has limitations on color and the decoration and the aesthetics. So we are talking about this variable information printing, which is for short-term use. And as, for example, barcodes or all these examples of the quick service restaurants, so these kinds of products. Then if we would go to a consumer product like food package on the shelf, there even the decoration capabilities and printing capabilities of that technology become a limitation. So -- and also some of the -- as it is in a technically like in a tape real, it can be unfolded there with the silicon layer. But of course, the adhesives are not very strong there. They are quite removable kind of adhesives that can tolerate this tape real way of storing if I put it this way, there are, of course, many, many functional needs for labels where much stronger adhesives are needed and much more difficult or advanced printing options are needed. And these are very much the domain of the traditional label and as I said volumes are big there. And the good thing about linerless labels, if I'll repeat that, is that it is mostly new product uses that if this cannibalization question, it is maybe -- it is relevant on the logistics side of it. But there the volumes are growing so much. So for example, this quick service restaurant end use. It is a novel use for label. There was no labels before and now there's linerless label. So it is not cannibalizing the existing either label stock or release liner market.

All right. Yes.

So physical reasons, not only kind of this kind of other predictions, so.

Jaakko, you mentioned the kind of scaling up or kind of cooperation with communication papers and their assets. What do you mean by that care, can you kind of elaborate a bit more? And what kind of time frames we are talking and so for?

Yes. So one example being from our German Northland mill where we are operating a Glassine paper machine, which is capable of producing also the base paper for barrier coating. And then communication papers has a coater next to our line, which is of the same size. So we can utilize that coater for the kind of finalizing the barrier grade what we are producing. And similarly, in Finland, we have then started to transfer certain of the kind of relatively standard coated one-side products to line which communication papers operates, and we kind of try to play both in that respect that we offer products, which they have capability to produce and which give them a kind of full stream and are beneficial for them to run. And then at the same time, we are able to free capacity for growing in packaging and CCK and other grades where we feel that the kind of entry barrier is higher and therefore, this utilizing small Specialty Paper lines is making more sense. But then how that develops. So the main thing is that we have the capability and then we also have the capability to grow with the market and support the growth of our customers. And therefore, having the flexibility to utilize it when needed. So that's the main benefit from our side and definitely the targets are.

And in a way, it's -- not all of the specialty grades are actually visible in your reporting because communication papers is doing some of them for you?

Exactly. Exactly. And there is kind of good -- that is true. And then also communication papers is producing some of these wood-free uncoated products, which are then being sold to special customers. So Specialty Paper sales network is taking care of the sales, but the production is at communication papers asset. So this sort of cross or combined and teamwork is functioning well.

And what about the kind of mid- to longer-term, do you see opportunities in conversions as well or...

That's one good opportunity what we have within UPM that we have communication papers, which is serving a declining market. And by definition, there will be some assets which would be less needed or not needed at all and then us being in a business which is growing. So then combining these 2 at best is kind of also enabling full run for those lines of better operating rates for those lines and then eventually even conversions or us from Specialty Papers filling those lines.

Yes. Antti, you talked about when you were kind of discussing the kind of shorter-term destocking and you mentioned this kind of price cost cycle perhaps turning. There's a question about the nature of Raflatac business is a self-adhesive product generally a cost-plus business? Or how would you kind of describe it? What other drivers do you kind of foresee?

Okay. So with the product examples of new product development examples I showed and we had a discussion about the sustainability spearheads earlier. So in this spectrum of many products in the portfolio, we clearly have a chunk of the market where -- well, in business-to-business trade professional buyers always commercial terms are discussed and pricing is always discussed. But clearly, there are specialty areas, sustainability where the ability to innovate, the ability to develop new products and the ability to, for example, provide certain raw materials that are either difficult to manufacture or difficult to source some of the -- we have a lock in on certain at least temporarily proprietary materials. So definitely, we see higher margins and more kind of stable business in the kind of high-end of the market, which are typically high-end products and profitable products for our customers as well. And then there is a portion of the market, which is much more standard, where product changes between suppliers are perhaps much easier to do by the end users and customers. And this part of the market, of course, there's more -- can be much tighter competition also on price. And as I mentioned in my presentation, our strategy has always been to try to be proactive and develop the higher value-added offering that we have and also compete on technology, on innovation, on sustainability, on service that we compete on several factors. And then, of course, we have to be efficient, cost-efficient as well. It would be -- I would be wrong if I would say that there wouldn't be a big chunk of the, let's say, more commodity-type of areas in the label market.

Regarding the product portfolio, there is a question that what kind of opportunity do you see for Raflatac to move further into higher-value categories, premium packaging, e-commerce, intelligent labels, reflective specific graphics or kind of higher growth emerging markets? And then another question was also related to RFID opportunity?

Well, there was a long list of course. And if I try to capture the essence of the question that what kind of accelerations or development investments we could do to grow even faster than organically in these higher value-adding segments. So this is our aspiration. And we, of course, the kind of opportunity space is quite wide. So we also have to be selective. But now this graphics market, for example, that we have entered with our acquisition, the more we know from the inside and see the synergies, we are very excited about it. I believe it's a good market and want to grow this new area for us, both organically and potentially also with M&A. So I think -- and it is parts of the graphic market are more higher value-added. The price per square meter type of KPIs are higher there than in the -- at least in the commodity side of the label stock. So yes, we have several development areas there. On the specific RFID market, so we don't have plans to enter the, let's say, the systems solution or even software side of the RFID market, which seems to be the way where the value in the long run will be. But we do -- we take exposure to the RFID market already today as we are a supplier of the material to the RFID industry. We just don't -- we are not engaged ourselves in the electronics or antenna production nor in the system solution or software side of it. We frankly don't believe that our capabilities would fit that. We are kind of proud and competent materials provider, but we have no plans to enter the kind of systems or solutions business.

Jaakko, for you about this flexible packaging offering. So there's a question, why not at converting to the offering, why stay in the kind of first stage of the value chain?

We know that the market gets very quickly scattered, that then the applications are qualified differently. The requirements for the products are slightly different and then they kind of being able to combine sufficient production runs and be able to be sufficiently and efficiently producing paper. So then we easily lose that. And that has been also one of these learning areas that -- what is the level of barrier grade that still makes sense to produce on a paper machine and then where does it start, that it makes sense to use a converter or a converter partner would do the rest. And like I said, we have these, our standard grades, which are good basis for further conversion. And then they can have, let's say, 100 different applications where these same base paper is being produced. But for us, it wouldn't kind of fly if we try to enter that area. And that is part of the co-creation also to learn that where is that line and where it makes sense for us to operate until and then for our customers also to trust that and understand that really it doesn't make sense for us to move any further from that line and they can they securely develop their own business based on that knowledge.

Thank you. I think we have used our time handsomely. And thank you our audience for very, very lively questions. A lot of questions. I'm sorry if there was some question that we couldn't cover here. But if that's the case, then please reach out to our Investor Relations and we will get back to you. Thank you for your interest and have a nice rest of the day.