BillerudKorsnäs AB (publ)

Good day and thank you for signing by. I will now hand over to Lena Shatawa, Director of Investor Relations.

Hello and welcome to Billard's conference call about our third quarter results 2022. Today's presenters will be Christoph Michalski and Ivar Vatne and they will hold a presentation and after that we will have a Q&A session. So with this I hand over to you Christoph.

Thank you. Thank you, Lena. Good morning, everyone. So this is the first quarterly result that we are doing under the name of Billerud. And we changed the name in order to align ourselves with the international customer portfolio we have now. And we are very happy for the change of name and the simplification that that brings. Secondly, before I start the presentation, I wanted to talk to you about the appointment of Eva Wagner as Deputy CEO, which I'm very happy about this appointment. Now that our business becomes a little bit more geographically diverse and we have a strong focus for developing that business plus the internal improvements and long-term profit performance We decided that it would be good to have a tandem to make this happen, and I think you all will agree with me that Eva Wattner is an excellent candidate for this role, and I'm looking forward to work with you, Eva, going forward. Having said that, let me come to our quarter results. As we said in the title, we had an exceptionally good quarter. I think if you look at our performance, 82% sales growth, which is clearly also coming from Verso, but nevertheless, it's still a 20% organic growth, which is clearly excellent. Adjusted EBITDA at 19%. It's a very strong performance indeed as well. And I think this is really tribute to the work that the whole team did by continuously price manage and mix manage as the cost, input cost was going up. And I think we have, since we started in quarter three, 2021, we have basically achieved this improvement slightly in front of the wave. And I think as Eva will talk to you about cost development, we think that we are still in a very good position going forward, but clearly times are a little bit normalizing in quarter four and then probably in 2023. If you look at our earnings per share, a record high at 5.42, and excellent cash delivery with more than 80% of EBITDA transferred into cash. Let me go to the bridge on the next slide, where you can see we had a bit of a currency rate effect of 7%. which is only the European and rest of world effect. It doesn't include the US. Pricing was 20% of the growth. 57% was North America, and there we don't have currency comparison, so it's basically our business in North America as it stands to date. And then we have a little bit in minus, which comes from the BISM divestment, which is marginal. But generally speaking, a very good performance. trying to mitigate all the costs. And that you can also see then on the next slide with all-time high profit, Q2, Q3 2021 with a bit of currency effect and pricing excluding pulp, North America. And then you see a big red block, which is basically our net of raw materials and logistics. And that also includes the balance of our pulp sales and buying activities. Cost efficiency, it looks small, but generally speaking, I'm very happy how the company has continued to become more efficient and more cost-conscious. And I just want to remind you this program stops at the end of this year, and one of EVA's key responsibilities will be to set up a new program starting in 2023, which will not look just at cost savings, but which will look particularly at efficiency improvements in our European business going forward. And then finally, you can see in this profit bridge, the maintenance schedule basically had an effect as well. And that brings you to 19% EBITDA for the quarter so far. Good. I think all of you are very interested how we see the outlook. And I saw in some of your initial comments, you have already commented X in quarter, but what's happening next? And I think I just want to remind everyone that I think we are in a very particular situation, which is due to A, the acquisition of Verso, which gives us a dual truck, so to say, or second leg to stand on. and currently Europe and North America in terms of market dynamic and the categories in which we are in are behaving quite differently. And then secondly, I think Bitterroot was always known for its strong portfolio, a lot into the food and drink and the markets and consumer goods, which basically are far more stable segments than, say, the industrial or the consumer luxury areas. So let me walk you through to the next slide and see how we felt this quarter and how do we see the future on those. So food and drink, I think we are all realizing that European is going into an economic downturn. Generally speaking, that means that consumers are not reducing consumption per se, but they're down trading. And all the products we sell in food and drink are generally speaking the same market and it's more a question, does it go more to brand owners, does it go more to retail brands, all these kind of things, but the materials they're using are basically similar or the same. And therefore, we see the food and drinks market relatively stable going forward, and it has already been stable. When you then look at printing and publishing papers, which is our graphic and speciality paper in the US, We actually saw a very positive quarter three, and we do not see any significant changes towards our positive outlook, so we called it stable in the future. And there's a number of reasons for that. In speciality paper, we have a change in the supply side with the closure of a pixel mill. We see still strong demand in speciality paper, and this market generally is growing. at a positive rate also historically, and there's no reason that this will not change. When you look at the graphic paper markets, here we see actually a revival a little bit, and the revival comes mainly from the premium catalogs in which we are involved in, and there's a continuous downward trend in the, I would say, the mass market segments of this market. As we are focusing much more on the premium area, we actually saw very positive trends this year, and we believe that this will also stay stable into 2023. Clearly, with the contraction of the economy, we will see some effects on consumer luxury, but in particular also on the industrial segment. And here it's mainly the container board, as you can imagine, will probably be hit, and also the carton board side on the luxury side might also be subdued for a while. This is entirely normal, and we see both of these segments, consumer, luxury, and industrial, less positive than we saw previously. But it is, as I said, I think overall we're entering in a much more normalized situation. Okay, I think with that, I would like to hand over to Eva, who will take you a little bit through cost and our different segments and this performance in North America before coming back at the end with our key conclusions. Thank you, Eva.

Thank you, Christoph. And good morning, everyone. A couple of words about the cost inflation. It's still very much a hot topic, 422. Definitely situation starting to be a bit different, Europe versus U.S., We expected cost inflation to accelerate going into Q3, and this is certainly also what we have experienced. In fact, the cost picture for the quarter is a bit higher versus what we estimated some months ago. In total, we've seen around $750 million of additional cost inflation in the quarter, and that is compared versus the previous quarter, or Q2. The vast majority of that, or Roughly 85% is coming in Europe. If you do a rough split of that 750, you will find it as follows. Fiber output, 200. Chemicals, 100. Energy cost, 250. And logistics, 200. Now, I did mention this is a bit higher than what we expected to hit us in Q3. Good news is that we have been able to offset all of that through pricing and mix management. And we look forward and some comments on what we expect in Q4. And I'll just do them box by box, starting with the fiber cost. We still see movement in the market with several of our biggest suppliers announcing new price increases. And that's also what we've seen during the quarter. Clearly, this is still linked to the imbalance that was created. Kind of pause the Russia import stop that Christoph mentioned some minutes ago. Pressure is still highest on hardwood, and we've seen that also over the last quarters. Availability on hardwood is still tight, but it's actually a bit better versus what we experienced during the summer months and in Q2. For softwood, availability is better, and we don't see necessarily the same price pressure. In U.S., though, the situation is different. We honestly see a slight increase in the fiber costs for the quarter, mainly linked to the fuel costs in particular. We were expecting Q4 to add another $150 million of additional fiber costs, pretty much all of that coming from Europe, and that should be considered Q4 over Q3. For chemicals, maybe no surprise, prices are heavily linked to what we see in the energy side. I think a lot of you know this already, the spot prices went extremely high on the part of the Q3 months. With the chemical contracts that we do have in place, we typically see kind of a two to three months lag until it hits our P&L. We would expect to see 180 million of additional costs. And again, most of this is linked to Europe, and that is again Q4 versus Q3. For energy, spot prices have also started to kind of calm down, and we expect a much more neutral position for Q4. We are very well covered with our strong energy hedges here in Europe. Also, natural gas in the U.S. have calmed down after pretty heavy volatility over the summer months. And to sum it all up, we expect a flat energy cost situation Q4 versus Q3. For logistics, we also expect kind of flat pricing Q4 versus Q3. That is combined for Europe and for U.S. A lot of things happening on that side at the moment. The freight rates for container shipment is coming down. We are trying to achieve these benefits by renegotiating and looking into different options, including the spot market capacity. But you can say that in general, we don't count on too much of that yet, given we did sign a lot of new overseas contracts, at least for Europe, back in May. So pretty flat logistical situation. So if you sum it all up, we expect around $330 million of additional costs Pretty much all of that coming in Europe. And for this coming quarter, we do not expect to offset all of that through pricing. We estimate at this stage to add roughly one percentage point of additional pricing. And most of that is actually coming in North America. So next slide, please. And we go into some highlights for the different product areas. And we start with the product area paper. Product area paper had a great Q3, excellent performance across all of the measures. We see high double-digit growth in terms of net sales, pretty much across all categories and in both regions. This was also a very heavy maintenance quarter for product area paper, with stops at both of our North American mills. Maybe just a couple of words, we'll talk more about it in a second, about the Queen Effect That was the biggest upgrade and investment upgrade that it did on that mill since it was started in mid-1980s. Happy to confirm that upgrade had been successfully completed. Again, despite unusually high maintenance costs in the quarter, profitability has more than tripled and margin is up versus a year ago. A combination of adding, obviously, the North American business, but very much linked to strong focus and continuous strong focus on price and mix management and delivery of a cost and efficiency program. So next slide, please. I'm going into some highlights of the product area board. In many ways, you can say it's similarities between the product areas. Definitely pleased also with the result that they've seen on board. Double-digit net sales growth for most of the categories and plus 18% when adjusting for currency. Just want to highlight in particular the great progress we've had on carton board. We've doubled that business over less than two years, and this is extremely pleasing as it's very much in line with our strategy to accelerate growth here. Profitability on good level, reaching 20% margin. very much the same arguments as I just mentioned for paper progress down to you know strong focus on price and mix management and Also here we see some help from our cost and efficiency program If you move to the next slide some comments on cash flow It has been another outstanding cash flow delivery which is extremely pleasing to see and Again, ability to convert our EBITDA to operating cash flow is on extremely strong ratio, and this will remain one of our top priorities for the coming quarters. Our net debt keeps coming down and is now just above 5 billion SEK, and that's almost at last year's level, which is quite extraordinary given the big transactions we've been through over the last 12 months. Net debt ratio of 2.7, and that is at all-time low. in this company history, and obviously it's another milestone to be very proud of. And again, I just wanted to highlight the strong performance we've seen now on return on capital employed. You'll find at the bottom of the chart, made a massive leap over the last years and now to 17% in Q3. In terms of the CapEx outlook, make a small adjustment for the outlook for 2022. It's a slight increase for the further recovery boiler. So taking the total position up to 3.4 for 2022. Just want to highlight that the increase in 30, that is only timing impact. It's not an increase of the overall investment scope. In fact, I can probably say that we are well on track for that project, both in terms of completion on time and for budget. Added some coordinates now for 2023, where we, at least for this time, we estimate 3 billion. 800 million of that is for Frövi, and then we have 2.2 as a combined base CAPEX for both regions. If you want to move to the next slide, this is actually one of the most pleasing slides that I can present this time and say a couple of words about how extremely proud and pleased we are with the performance we've seen in North America since the start of the takeover. Both categories are performing strong. deliver excellent profitability, but I think last but not least here, both are net cash flow positive to the group. No doubt when we look at the current pace and performance, this acquisition payback will be much shorter than we expected. I think just linked also to what Christoph was alluding to that the business we have now over there in North America, it's a clear geographical diversification, offers a more balanced position for the company where we've been historically almost fully relying on what's going on in Europe and Asia. We successfully completed the mill operating Quinnisec, which I mentioned. This will enable a higher pulp output. It should also improve the machines of the Q41 runability on heavier grades and improve the formation output. This has a profit upside tied to it, and we expect to see this coming in from the beginning of 2023. 70 to 100 million SEC is the estimate we expect on an annualized basis. Just for the last point, we have several streams of integration efforts on the way, pretty much across all of the company's functions. The progress has been good, well on track, and where we wanted to be two quarters into the integration. So with that, I'm handing it back to Christoph.

Thank you, Ivar. Priorities quarter four and throughout 2023, no surprises here. We will continue to work on our strategic objectives, sales growth through continuous focus on sustainable packaging opportunities and innovation. And that includes clearly working on the transformation project in the USA. That includes things like How can we improve our sustainability footprint both in the USA but also with the project in Norway? And I think there's a number of activities that we are doing which will deliver a significant improvement in our operations but also in our sustainability footprint going forward. Clearly, in the more immediate terms, we'll continue to focus on mix and price management. And that will increase basically all segments and all type of contracts. As you know, we have long-term contracts with some of our customers. But in view of the pricing increase that we are coming, we will actually start to talk to these customers as well, as well as renewing more short-term contracts with relevant price increases, which balance the needs of our customers, but also the need of covering costs. And then, as I said before, one of the key things that will happen this year is a real comprehensive and a holistic program to work through our value change and develop a new efficiency program in 2023, which will then follow up over a few years to make sure that we are world class in the activities we are doing and the operation, both in efficiency from that perspective, capital management, but also cost. I think I don't need to mention Fulvia anymore. You said it already all, Eva. We will be ready for the startup in 23, and the project for now is totally in line with timing and cost. And maybe one thing to add is, or I point an additional point I want to make about the transformation, is that I think we have progressed very fast and very well in most of the key themes. We will audit that program, that integration program, in the first quarter of next year, and we'll try then, depending on the progress, which we think is very good, close it down as soon as we can. There will always be things that need to be managed in the longer term, but we will manage them as a day-to-day, business-as-usual type projects, as we do with all the things we do in Europe as well. Good. What's the outlook for quarter four? As I said, I think still solid demands for all our key products, but the sentiment is clearly changing, as you can read everywhere in the press, in particular in Europe, while we foresee for the moment, at least in our market segments, a relative stability in the United States. Cost inflation in Europe clearly will continue a bit on wood and chemicals, basically a direct relation both on energy prices and the cost in the U.S. is much more flattish going forward. And then focus, as I said, on price and mix management across all customers in order to balance these cost increases with prices. Good, that concludes our presentation of the Q3 results and I'm happy to hand over for questions.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. Once again, if you would like to ask a question, please press star 1 and 1 on your telephone. We will now take our first question. Please stand by. And your first question comes from the line of Christian Kopfer from Handwoods Banking. Please go ahead. Your line is open.

Thanks, Opera. Good morning, everyone, and thank you very much for the presentation here. I think maybe first on for Ivar. Thank you very much for the transparency on the outlook for the fourth quarter. Can you also perhaps comment a little bit what do you expect in the short term on volumes slash mix?

Yeah, I can try at least. I think we had clearly a bit of a lower volume into the quarter due to the extremely heavy maintenance stops. So in that sense, we certainly expect the volume to come back up into Q4. And you can say much more in line with what we saw in kind of a Q2 area. Obviously, that is, as you know, sitting already into the total maintenance cost that we offer. I think on the mix side, you can say that we continue to look at mix from different dimensions. From a sales mix, clearly we know that there are mix category opportunities when we drive the above average profitability items and we look at that kind of channel by channel we look at that by customer by customer think also on the mix on the input cost we definitely look now given the hardwood situation extremely strained and high that we continue to look into the recipes we continue to look into how we can in a smart manner balance the mix between soft and hardwood to manage cost I think those are some of the coordinates I can offer on that.

Okay, that's great. And then I guess for Christoph, you mentioned the transformation in the U.S., but I'm a little bit surprised that I don't see any capex budget for the transformation in the U.S. for 2023. So is it fair to say that you are... but pushing it forward a little bit because today and you also mentioned the graphic paper market seems to surprise you on the upside so the strength is better there so you maybe can push the transformation forward a bit no I think as you know when you do these big industrial projects you have to go through a couple of phases of analysis I think when we did the acquisition case we had a good concept which we

costed out based on the experience we had on previous industrial projects in at the time. I think now we are doing basically the hard work on the ground in the US with the pre-feasibility. Once we achieve the pre-feasibility results, then we will go to our board and then we will decide what is the CAPEX program necessary to perform on this project. And because we haven't done that yet, we haven't had the conclusion yet, we cannot enter any capex numbers, because at this stage, it's too early to tell. And as soon as we, I think it's in, plan is around quarter two, we will have much more visibility on that, and then we will brief you on that again. Timing-wise, I don't think that we are working towards the delay. I think it's, it wouldn't matter, but that's not our intention, but clearly, We also see that our suppliers might not be able to deliver projects in the same time horizon than they did historically. And therefore, we have to wait for the overall feasibility result in order to give you a much more specific view on that project. We are super excited by it, as you can imagine, because the opportunity in the US is huge. And in the short term, the good performance of graphic paper and speciality paper is clearly making us not unhappy that basically we have very good business while we are preparing for this transformation.

That's great. Thank you very much. That's all for me.

Thank you. We will now go to our next question. Please stand by. And your next question comes from Johannes Guanzilius from D&B, please go ahead. Your line is open.

Good morning, everyone. It's Johannes here. Hi. My first question is on the Q4 outlook statement, and thank you very much for the transparency. Just to be clear, Eva, you said, was it 330 as a headwind for cost, and then you were talking about 1% additional pricing Should one look at this to be applied on a 10 billion SEK quarterly basis? Or can you help me a bit there on how to look at the revenue side, please?

Yes, I think that's a good estimate. It's pretty much in the area of 10 billion, so you can use that.

Okay, thanks. And I suppose you are also forcing some tailwinds from MIX here, am I right? Or can you comment on that? I know this was partly discussed in the earlier question, but anyway.

You can say that we definitely try to do mix, as I mentioned to Christian, from different dimensions, both on category, from customer, and probably also from the input. So that's why, in that sense, it's a bit more difficult to put the price tag on it. You can say that when we look over the last quarters, what we've been able to do, we've had some tens of millions of profit held from MIX every quarter. And I would certainly expect to also see that going into Q4. Okay.

Then my final question is on your second transformational growth project or strategic projects, the PULP in Norway. When do you think you can be more explicit about this project and what you have indicated so far in terms of, you know, size and some indicated cat-backs, is that still valid?

Well, I think it's significantly on the same levels on the transformation in the U.S. when it comes to timing. So we are working on the pre-feasibility as we speak. As you know, this will be a joint venture with Wieck & Skog, and here Here, clearly, we need to follow a very, very disciplined way of doing it. We have also decided that this will be an opportunity to create, or at least our ambition is to create the first carbon-free pulp mill. And therefore, we are now looking in all these different aspects. And my expectation is that the project will be, you know, project information will be available quarter two and quarter three. And then we brief you in more detail. We are very, very excited by the fact that we have an opportunity to work with Norwegian industry and players around the project to actually making our carbon footprint very, very, you know, basically creating a carbon zero mil. And I think if that would mean that we have to lay the project by a quarter or two, I would definitely go for that. This is not an issue of CAPEX. but an issue of finding the right partners for carbon storage and carbon usage. Okay. Thank you.

Thank you. We will now go to our next question. And your next question comes from the line of Oskar Lindström from Danske Bank. Please go ahead. Your line is open.

Yes. Good morning, gentlemen. A couple of questions from my side. I wanted to start off on what you mentioned there, or what I think you mentioned, Christophe, about revisiting prices in your board segment. We saw that the underlying profit here in the board segment declined sequentially, or at least as far as I could determine. What in more detail are you hoping to do here? to apply some sort of temporary price increases or on the liquid packaging board side? That's my first question.

Okay, yes, you're correct. So we have all these different lengths and contracts, and they go from everything from three years to three months, so to say, across the board. And we have decided in view on the very difficult cost situation, as you know about, to basically have discussion with all our customers. Clearly, I cannot enter in the commercial strategy of which player, if it's liquid packaging board or other segments, and how we will do that. But I think the only thing which is important to know here is that we do not let too many stones unturned. in order to try to mitigate some of these headwinds. As Eva said already, we will not mitigate anymore the whole cost increases, and I think that is not the purpose either because our price management was so successful since quarter three last year that we have always been slightly in front of the cost wave, and now the wave is here, and I think As I said, our business will normalize a little bit. But you're correct, we will look at all customers, all contracts, and see what we can do to mitigate some of these cost increases.

Would those cost increases be similar to what we've seen with market prices for folding box board? Is that the magnitude that you're looking for?

No, I don't think so. I mean, look, when we look at costs, I think you're all fully aware of the energy costs and the impact of chemicals and all these kind of things. The thing which is probably a little bit newer than what we talked in quarter one and quarter two is now also a significant increase of the wood cost. And that is mainly driven, in my view, by the war in the Ukraine and the consequent closure of the Russian border, which created some stress, in particular on hardwood, but also then resulted in some cost increases of softwood, because I think all players then tried to substitute a bit more hardwood with softwood. But these are the type of costs that we did not predict at the beginning of the year. We were always very much focused on the general inflation, and we have to work with these things. There is no wood shortage. Let me be very clear about that. I think we had in hardwood probably a more tense situation even in the summer than we have now. And softwood is availability is good. But clearly the war in the Ukraine had a secondary price effect on the Scandinavian wood market.

Just a follow up question here. You say that the availability is quite good and has in fact even perhaps improved slightly from the summer. Have you or are you aware of others who've brought in volumes of hardwood from outside of the Nordic region to supply the Russian shortfall?

I cannot talk for others. What concerns us, we are clearly looking at all sources. And for the moment, I would say importing wood from other areas of the world into Scandinavia would be from a price level as bad as with wood from the Baltic state. And as you know, that is kind of an equalizer in the market equation. So for the moment, this is not a significant part. We looked at it, but we are working very hard with all our sources in Scandinavia to optimize our wood mix. both in terms of where we source from and what type of wood, be it hard or soft wood. And we're basically adapting our recipe as best as we can without undermining quality or specs for customers.

All right, thank you. Just a final question on the Norwegian project together with Wieck & Skog. As I recall, this is sort of a, mechanical pulp mill, or at least partly mechanical, would that not be very sensitive to energy prices in southern Norway, which have been very high? How does that factor into the equation?

Yes, you're correct. The BCTMP mill, which has higher energy needs than a normal chemical mill, so it's It's on the site. We have bath boiler. We have electricity, bioelectricity available. We also look at the green electricity available in Norway. And basically, all of these kind of cost, input cost discussion enters this pre-feasibility project that we have with Wieken in Norway. And the only thing I can say, for the moment, we don't see any red flags that this project will be under threat based on the new energy cost structure that you find in Europe.

All right. Thank you. That's good to hear. Those are all my questions. Thank you.

Thank you, Oskar. Thank you. We'll now go to our next question. Please stand by. And your next question comes from the line of Linus Larsson from SEB. Please go ahead. Your line is open.

Good morning. Thank you very much. A follow-up then on you reviewing, as you say, all contracts. Is it fair to say that such potential adjustments would occur from the start of 2023? And also, are you then not only looking at board alt, but also maybe into the paper segment?

Yes, Linus, good morning. Yes, with all contract discussion, you know there's always a delay, so I think you are spot on saying that the effect of this revision will be in 2023 onwards. Look, yes, we look at all segments, and as you know, we still have a lot of disruption in Europe in terms of demand when it comes to paper. We're looking also at different markets. As you know, we have a big SAC business towards the concrete industry and that industry clearly will be slowing down. So there are many different aspects and it's impossible for me to take you through all of them. But I think my key point is we do not take price as a given in an inflationary market situation. And what we will try to do is always to balance the need of our customers, the volumes we have to provide and the prices, we can charge for that. And we will do our best to find a good compromise here between our profit targets versus our customers' needs.

And if you look specifically at your liquid packaging board business, how much of that business is up for regular, if I may call it regular, contract renegotiation at the start of the year?

Linus, as you know well, we don't comment on specific customer contract negotiation or timings. So I have no comment on that particular question.

That's fair enough. And then just finally on the U.S. market, it seems, I mean, prices are high. It seems that there are even capacity shuts in spite of high prices. Could you just give an update? What's your feel of supply-demand and market dynamics in the U.S. paper market right now?

I cannot really comment on the full paper market. We are only operating in two segments. One is graphic paper, and here the kind of exposure we are having is in direct mailing, in premium catalogs, and these type of products, and what we call commercial printing. So we sell to merchants, and these merchants then sell to small printers all over the place, and it's a very fragmented market. So we see two trends here. The first trend is that a lot of companies who were only digitally on the march, so to say, have realized that the complement of paper, be it a catalog, a small catalog, specialized premium catalog, or that additional mailings or areas, small local companies type promotion, based on papers and things like that is far more effective than only the digital presence. So we see a big reversal from these type of catalogues than, say, two years ago. The second is, which is another positive trend, it's a negative trend in itself, but it's a positive impact, which is the awareness of consumers on their issues on privacy. And more and more consumers are actually a little bit more careful, and you have seen You know, the type of things like when you use an app now, it asks you if you allow the app to track on advertising and usage and things like that. And clearly, lots of people have said, no, we don't want to be tracked. And that brings marketeers in the U.S. back into this normal, I would say, the media market like when I grew up with paper and television and such and such. So, a big change, I think quite a fundamental change we are seeing in the U.S. in that market. And that makes the graphic market in the segments we are very attractive. Secondly, on the speciality paper market, so release liners and stickers and all these type of things, here we see two things. A, it was a market which was growing two to three percent on a general basis. But on top of that, we saw the closures of a number of mills, which changed a little bit the market balance and which basically brought prices up quite a bit. We do not see immediate changes in this situation. I mean, you know as well as I do that assets in the US are relatively old. We have the best ones when it comes to cost effectiveness and things like that. And if they are not very significant investments, I see that the market will probably stabilize at a higher level as it did before. Will graphic paper continue to grow? No. Overall, in the mass market segment, i.e., you know, this huge catalog that we had before and groundwood paper, graphic paper, these type of things, I think the decline will continue, but maybe at a slower rate than it has been before.

Great. Thanks for the colour.

Thank you. Once again, if you would like to ask a question, please press star 1 and 1 on your telephone keypad. Star 1 and 1 to ask a question. We will now go to your next question. And your question comes from the line of Cole Harthorn from Jefferies. Please go ahead. Your line is open.

Good morning. Thanks for taking my question. I'd just like to understand if you can give any color on, you know, you talked about the SAC and speciality craft market. I'd just like to hear your comments around how demand has been developing there and any particular areas that are big for bill of route that you can call out where you're seeing kind of a slowdown in the order books or kind of a continuation of demand levels. That would just be helpful color. And then following up on that, just like to understand what you're doing to manage your wood cost environment in Sweden at the moment. You talk about changing kind of the mix between hardwood and softwood. Just trying to understand how you see that market developing from here. Are we starting to hit the peak of wood cost in the fourth quarter and what you're going to be able to do to kind of manage that your total cost from the market. Thank you.

Eva, do you want to take the first one? I can. Hey, good morning, Carl. So let me try to just give you some flavor, as you say, on the second craft. I think it's more reasonable here to just talk about the different channel exposures we have, because I think that is, in the end of the day, the denominating factor. You know a lot of our SAC business go into industry and constructions. And there's no doubt that that is certainly cooling down. We had a very good, you can say, last three quarters. And actually going back four or five quarters, we had some strong numbers. Still okay order book. And in many ways, you can see this holding up. But there's signs definitely that things are cooling down. We see that just in terms of, I can say, the order book length. but also in terms of some input from our customers, et cetera. And it's not a massive surprise given how construction tend to be a very leading indicator in the economic environment in general. And clearly that's been on a bit of a shaky ground for some time. I think another channel I might just wanted to highlight in our second craft, that's more on the craft business, It's the food and it's the sack business that we will typically refer just as the white sack. It's somehow better. I think also it's linked to some of the channels we're exposed to. Their food service still is going pretty well. So we probably see that a little bit better, although there's certain also signs that things are cooling a little bit down on that front that we don't see as bad as on the industry side. Small, you can say exposure still into the medical, which is holding off pretty well, but that's, as you know, a much smaller part of a business at the moment.

Okay, good. Let me talk about wood then. So as you know, we have, generally speaking, I think very good wood price level in 2020, 2021. What we see now, I think the shock to the market was really two things. First, clearly the Russia closure of the border, as I mentioned before. Second one, however, not to underestimate, is also the fuel price increases, which increase basically the cost to collect the wood and bring it to our factories. So that is the key, the two cost drivers, and clearly I think, if you ask me today, I think the wood market is about to stabilize. I don't know if it will go up or down or stable as it is. I think the big shock of the lack of the Russian wood in Finland is now basically understood and the market players have adopted. As I said before, there are two ways how we manage that. The first one is as an input, so where we basically ask ourselves the question, Can we change the recipe? Can we change our product portfolio in a way to actually consume less hardwood, which is the more, you know, the impact on hardwood was clearly bigger than on softwood. So that's one. And the second one, as you know, previously, we had, I think, a very much a spot price approach to wood purchase. And we have As I said already on the capital market day, we're now looking at what more like a sourcing activity as you would do in professional sourcing. And then we take calls. Should we have longer term contracts? How should we structure them? Where should we source for? How much should we buy from from forest owner companies versus from small holders of forest land, etc., etc., etc.? And this is basically what we're doing. optimizing as we get around our input cost. But again, I think it's like with pulp prices, we can only speculate whether or not we reach the peak of the wood market or not and what happens next. So we try to influence really working on the things we can influence. But at the end of the day, this is a big market and the market will find its price level.

Thank you. I will now go to our next question. Please stand by. And your next question comes from the line of Johannes Grunzelius from DMB. Please go ahead. Your line is open.

Yes, hi again. Can't stop myself for asking you a few more questions. But my first one is on how one should look at the maintenance cost for a year in this sort of new company here, including the US business. Can you help me with that, please?

Yeah, I can do that, Johannes. It's a good question. I think the Europe maintenance schedule shouldn't be a massive surprise. I think that you should just consider it pretty similar to what we've had over the last years. I think you can say as a summary in the U.S. that we tend to do a bit of a longer stop every second year and then a shorter stop every year. It is also true that historically that rhythm has been not always 100% clean in the sense that it's also discussion we typically have with insurance company on what the need is, etc., But to just give you some examples of this for next year, given the very big maintenance shutdown we had in Quinnisec, we do not expect to have any shutdown on Quinnisec next year, while we would expect to have a smaller or something similar like we did this year on Escanaba.

Right. So I haven't looked at the numbers or I don't have them in front of me, but it sounds to me that it's a three, four hundred million less maintenance cost than for next year.

Yes, at least. I don't have actually that number in front of me, but it's at least that. If you give me a minute, I can give you some estimates. I think we said Escanaba is 180, and that's probably a good estimate for next year. We had a bit more than 400, I believe, for this year in Quinnisec, and that should not appear next year. Okay, that's helpful.

And then I also saw in the report that you did some improvement on Quinnisec, leading to sustainable results improvement of 70 to 100 million. It's actually quite significant if one assumes that is sticking every year. But is that a combination of more pulp volumes and better qualities, as you said? Or could you perhaps give some color on that and what kind of assumptions are you using on the pulp price, I'm thinking?

Okay, so on the pulp price, I cannot give you any assumption because that moves up and down.

But it's about... It's not the spot rate, I suppose. No, no, no.

Let's say the long-term average we typically use in that estimate.

Okay.

So the big improvement is actually we can produce significantly more pulp. I think it's around 30,000. And that was done by basically just changing the head of the digester, which created a far better flow. And then the second improvement, which is really important, is the head box of the Q41 machine. And that allows us to basically widen the operating window of the machine and will allow us to play between graphic paper and also now grades of speciality paper. As you know, the graphic paper, we are in the premium segment, so that's pretty good. But the overall market is less stable than the speciality paper, which is growing strongly. Okay, understood. Thank you.

Thank you. There are currently no further questions. I will hand the call back to you.

Okay, so any final words, Christoph, before we conclude this call?

I think we are done. So thank you for your attention. Thank you for joining the conference this morning. And I'm looking forward to hear from you and to talk to you in January where we will have the full year. Thank you very much and bye-bye.

Goodbye.