BillerudKorsnäs AB (publ)

Good morning and welcome to Biller's presentation about our 2022 year-end report. The presentation will be held by our president and CEO, Christoph Michalski, and our CFO, Ivar Vatne. And as usual, they will take questions after the presentation. So Christoph, let's begin, please.

Good morning, everyone. I'm here with Ivar and I'm very pleased to be able to present you our 2022 results and the quarter in particular. So, before we go to the quarter, I just want to highlight we had a record year in 2022. You can see reported 63% growth, which was the first acquisition, and on top of that, a very impressive 16% organic growth performance. All-time high profitability. adjusted EBITDA margin of 19%. We were able to mitigate most cost increases during the year with prices and mix. And with our new company, we have now achieved an EPS which has tripled versus a year ago. And most of the EBITDA was translated into cash which, as you know, is an important part of our going forward to transform the U.S. into cardboard and the projects we have in Norway. If I go a little bit through the key items of the year, you remember we had a Capital Market Day in November 21, where we basically presented you and discussed with you our strategy. I think in 2022 we have executed and we have worked on many, many other points of the strategy with some good success. So if you look at our record sales growth, it also means we had an excellent ROSI and our net debt level to EBDR is only 0.6, thanks to the performance and to the issuing of new shares in June last year. The acquisition of Verso has gone very smoothly after the closure on 31st of March. We have started an integration process and today we have basically decided already to finalize this project. It's now finalized in terms of integration and a few outstanding items will be run by the functions. So very good and very quick integration. We have also started to work immediately on the transformation plan, which is progressing well, and we continue to work towards the first half of this year where our pre-feasibility should be completed. When we talk about Norway, good progress as well. We have completed the pre-feasibility and are now in the feasibility phase. Just as a reminder, Norway is basically a joint venture with Wieck & Skog, where we would like to build a BCTMP pulp mill with a best-in-class performance, but also with the opportunity for biogas capture and carbon capture, and to integrate basically to create the first – our ambition is to create the first carbon-negative pulp mill in the world. All progressing well. Finally, you're aware, and this is not about our strategy of the CMD, but about a project that we launched a little bit before that, which is our recovery boiler in Frövi. Despite the war in Ukraine, despite all the logistics delay, despite all the missing items and components and chips in the world, I'm very happy that the team has progressed this project on track. So it's on time. budget and it will probably go online in quarter three next year a little bit in advance of the timing of quarter four let me go now in quarter four so quarter four continue to be to be strong both in net sales growth fourteen percent organic growth and also in profit I think we are very pleased about our North American business, which contributes significantly to these results. In Europe, we have a slightly different picture. We have now, I think, maxed out pricing, but cost continues a little bit to climb. And I think this is probably the first quarter where we see some more softer demand, which is, in my view, very much driven by some destocking of our customers and probably also about the future outlook of the economy, which probably November, December was still very much feared to be bad, which I sense is a little bit better now already. So I think we will see a change now in quarter one and then hopefully a quick recovery after that. Let me take you quickly through the bridge on net sales. You have seen pricing impact in this quarter is still 15% and basically currency rate a little bit. Volume growth has been flat overall, but strong performance by adding North America. You can see 60% of the growth. And then finally, I think BSIM is the last time we have it in the quarter because it was divested about a year ago. When we go to the profitability, again, outstanding profitability from North America. And for the first time, unfortunately, you can see that the cost inflation actually exceeds the pricing and mix that we achieved in Europe. We don't expect this to continue for many quarters, but I think quarter four is clearly the start, and we hope that in quarter one, 2023, the worst will be over. I think it comes from the double effect of economic unsecurity and some destocking, and this will be very quickly through, I think, through the system. Why do we are still very optimistic for the year 2023 despite a relatively weakness in quarter one and maybe already softening now in quarter four? It's because we have a very significant of our sales in the foods and drinks sector, which tends to be much more stable. But I think overall it comes from a very high level and therefore going forward by segment we will have more challenges going ahead. Clearly today we see already some significant weakness in industrial and but continue to see good performance in printing and publishing paper in the US and foods and drinks as I said are more stable as we go forward. Okay, I will stop here and hand over to Eva. Good morning Eva and please I leave you

Thank you, Christoph, and good morning, everyone. A couple of words on input costs and price development. We have seen another quarter, as Christoph was mentioning, with steep cost inflation. We've added roughly 325 million when we compared to previous quarter, so that will be Q3. However, the situation there is greater between the regions. For North America, Very good news. We've actually seen a reduction of costs. So about 60 million versus previous quarter. And this is first and foremost related to the decline in natural gas rates post the summer period. Chemicals and logistics pretty much flat for the US region. That means for region Europe, we've seen cost inflation in the area of 385 million. Fiber and chemicals are by far the biggest cost drivers. each with incremental 200 million each when we compare them versus Q3. Logistics being stable, why we see a slight help from energy around 15 million. Now going into Q1, we do expect the same regional trend to continue. So for North America overall, we expect to see a pretty flat cost picture when we then compare versus Q4. And however, for Europe, the pace of cost inflation is slowing down, which is good news. But we estimate around 270 million of additional costs to be added in the quarter. And most of that is expected to come from fiber pulpwood, 150 million, followed by energy, 100 million, and a small tail on chemicals of 20. We do expect logistics to be flat. Now, if we move on and we start with some coordinates for product area paper. Product area paper had another outstanding quarter with excellent performance, both when we look at top and bottom line. As we have seen over the previous quarters, we see double-digit net sales growth across all categories and for both regions, which is very pleasing. We managed to add approximately 100 million SEK of extra pricing when we compare that to Q3, pretty much solely coming from North America, impacting the graphic and speciality paper. Pricing in Europe was more or less flat. Volume came in a bit short for this quarter, and I think Christoph already alluded to this, but it's mainly related to softer demand across categories. and different channels combined with inventory adjusted by some of our customers. Profitability for the quarter outstanding, ending with a 28% EBITDA margin. Most of the profit growth is related obviously to the inclusion of our North American business, but also within Europe, we managed to keep an impressive profitability level that we are really pleased to see. So let's move over to product area board. And for product area board, there are some similarities. There are also some quite sizable differences. We start with the top line performance. It's another solid quarter. Yet again, we see high double-digit growth across all of the categories. We have managed to keep prices flat throughout the quarter. although the market is starting to show clear signs of pricing contraction within several categories. Also for product area board, the volume landed a bit soft versus expectations. Very similar drivers, as we mentioned, for paper, softer demand, in particular for container board and carton board, in addition to some inventory adjustment for some of our customers. We did see a pretty hefty profitability contraction for the quarter. I'd like to explain that for a couple of minutes. In essence, the margin is coming down mainly due to cost inflation has continued to accelerate while pricing is leveling out. And on top of this, we've had some production challenges during the quarter that encouraged some one-off costs. And actually, probably a better way to visualize this and give you a bit of a size of the magnitude is if you move into the next slide. This is a bit of a one-off event we do to show a quarter-over-quarter bridge for product area board, but I thought that might be very useful this time given the pretty hefty movement we've seen. So starting with the base, then Q3 from 22, there is a certain help coming from our net FX position of pricing is flat, volume hits us negatively, while the big item quarter-over-quarter is the cost inflation. Most of it, as I mentioned already, is pulp food and chemicals related. You find a small little item as well on the vacation accrual, and that is obviously linked to how we handle the vacation handling during Q3. And we also have some other items. There's a red box there at the bottom, 145 million of production disturbances during the quarter. You can say that is cost and items that needed immediate care, given how we had some troublesome items, not big insignificant, but for most of our board meals, we had some items that needed extra care in the quarter. Now, and I want to highlight that that is an item that is one of in nature, and we do not expect to carry with us that going into Q1. Good. So if you take the next slide, please. And moving over to cash flow, this has truly been one of the biggest successes during 2022. We've had and we have delivered strong cash conversion pretty much in all the quarters. And Q4 was no exception. 33% of EBITDA did we manage to see to operating cash flow. And that is a number that we are delighted with. We have seen very similar ratios for the full 2020 figure. I mean, the strong cash conversion has enabled us to further fuel our balance sheet at the end of the year. As also Christoph was alluded to, the all-time low net debt leverage ratio coming down then to 0.6 when we close the books for December. The very different profitability level we've also seen has ignited our return on capital employed. That has come a long, long way in a few years and reached now 18% for the total year. The Board of Directors proposes an increase of ordinary dividend from 430 to 550 SEK per share. And on top of this, the Board of Directors has proposed an extraordinary dividend of 2 SEK per share. As you know, this will go to the AGM further down the line in 2023. Slide change of the CapEx outlook for 2023. We move it up by roughly 100 million. So 3.1 is the best view we have at this stage. 2.2 of those coming from what we call base capex items between the region. And then the recovery boiler, 900 million as that project will start to come to completion. Right, so if you move to the next slide, please. And I think in a situation where the market situation is volatile, also difficult to predict, It is of high importance we continue to focus on items that sit in our own control. And that is obviously what we wanted to focus very hard on going into 2023 as well. We are launching a new profit improvement program that will run over the coming three years, setting also the ambition quite high, achieving a profitability uplift of 1.5 billion. measured then in the run rate when we come to end of 2025. And that is obviously measured in an EBITDA impact. Clear target for this year in 2023 is to already deliver a 400 million impact when we close the books then in December 2023. Now, a little bit more about what this program is all about. And I think it's probably useful in this context to talk about you know, the evaluation and the learnings we take with us from the cost and efficiency program that we started back in the fall 2019. We've run that program now for a bit more than three years and closing it down in the end of 22. You might recall we have raised the program ambition several times throughout the program. And that program was mainly focused on cost efficiency within fixed and variable cost buckets. And what we take with us from that, I would argue, very successful executed program is both what the impact the organization can generate with the right focus. And we also take with us quite a bit of confidence there is definitely more potential out there. And what we're really trying to achieve with this program is to reach further to the full potential of the company. And if I can use an analogy, we probably picked some of the lowest hanging fruits now in a previous cost and efficiency program. This time, we climb a bit higher up in the tree to pick some items that are a little bit more difficult to reach. And particularly in this case, we will be looking at items and activities that require a stronger functional collaboration. And examples in this case being areas to reduce trim, optimize further product recipes, and a much more seamless sales and operational planning across the company. You can expect quarterly updates on how we're progressing on this program. We will also at some point come back to a target split for the 2024 and 2025 impact respectively. So with that, I hand it back to Kristoff.

Thank you, Ivan. Thank you. Very clear. So priority 2023. I think the most important for you to know is our strategy has not changed. We have a growth agenda on carton boards, expansion to the US, basically optimizing the footprint of our operations in Europe and to continue to have very efficient wood supplies. And I think if there's one item on the agenda which has to be clearly number one and where we are, I think, not making the progress I wished is on health and safety. we achieved not entirely our target in 2022, so we need to redouble the efforts to achieve our targets in 2023, so very important. We continue to work on our strategic objectives, sales growth, continuous focus on sustainable packaging opportunities and innovation. We also will continue to work, as Eva alluded already, on our profitability growth, not only with efficiency programs, but also when it comes to mixed price management and in particular production stability and cost discipline. As Eva mentioned, we deploy this efficiency program and I think this is really the right program to do. It's not about cost cutting, it's about efficiency improvement, which is basically a big team sport. So when I talk about the key project, which is clearly on our agenda, On the slide, you see a photo of the closed recovery boiler in Frövi, so very good progress. If you remember the initial photos we showed you in the other quarters when this recovery tower was slowly built, an expected start-up, as I said, in quarter three. I think the Norway BCTMP feasibility ready in quarter three as well, so ready for investment, but we haven't seen any red flags on that project today. and we are very, very happy with the collaboration with our partner, Viken Scope, in Norway. Pre-feasibility of the U.S. is continuing into H1, and that will then define more or less the timings and a better view on the overall capex, and we will come back to that in due course when we have the right discussion with our board. Outlook quarter one, more challenging, as we already alluded to, with softer demand. And I think, again, softer demand, why? Because of slightly adjustment of stocks. And these stock adjustments are probably coming from the logistic difficulties we had in 22, and people basically for safety ordered more than they would have normally done. uncertain economic outlook, but maybe not as bad as we might have thought a few months back. So I think there's hope for significant improvement. And then finally, I think, you know, every time a market goes into this kind of wait and see, there's also some expectation to order later just to have more security when it comes to volume needed and surprising at that moment in time. Liquid packaging board is the exception. That is very clearly stable. And as I mentioned before, we even had some good price discussion with our customers in order to mitigate some of the cost inflation. And they were very successful across all our customer and liquid packaging board. We will have nevertheless acceleration of costs in Europe still in H1. We hope that this will clearly soften as well as demand generally in the economy is going down. But clearly the key driver is energy. And then when it comes to the forest industry, there's still some. Basically, we are probably at the peak of the wood price now as we go ahead. In the U.S., the picture is better when it comes to cost. It's stable. Some are even declining. And we sit in a very competitive woodbasket, and we expect the U.S. business to basically motor on as we go, with the same kind of caveat on the economic development and some destocking in graphic and speciality paper. And then finally, quarter one is clearly the kickoff of the sufficiency enhancement program. And as Eva alluded to it, we have a strong target of 400 million for this year. Quarter one is really the ramp up. We're well prepared, but the projects are rolling in. But therefore, I think quarter one will be the startup, and then in quarters two, three, and four, we can probably report some results from that program. Good. Having said that, I think I come to the end of our presentation and I will hand over to the operator who will manage the Q&A as we go on. Thank you. Thank you, Eva.

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. To withdraw your question, please press star 1 and 1 again If you would like to ask a question, please register with your first and last name and company. Once again, it is star 1 and 1 to ask a question. We will now go to our first question. One moment, please. And your first question comes to the line of Christian Kopfer from Handelsbanken. Please go ahead. Your line is open.

Yeah, thanks. Operator, good morning, everyone. Just firstly, Christoph, I think in your final remarks, you mentioned that you have been, quote, very successful in raising prices within liquid packaging board. But still, you also mentioned that you are not able to, as I understand it, at least to fully mitigate the cost inflation. Is that because this has overcome a very stable product, so that it is quite hard to get the price hike through? Or how do you do it?

Good morning, Christian. Thank you. Thank you for that question. Well, look, I think, as I said already in quarter three, and some of you were quite surprised that, you know, in liquid packaging board, we have long term contracts. And I think we took the extraordinary measures this time that we would basically have a round of price discussion with our customers, because the inflation, cost inflation we see in Europe, both become because of energy and and that then translates to chemicals, et cetera, but also on the wood side was significantly more than you would normally expect in a stable market. And I cannot really go into customer by customer, but we got what we needed in order to continue this business in a good way. And we also understand that costs are probably at its peak now and they will come down. So when I say it mitigated some of the costs, It's probably in quarter one. It might not be everything, but over the year, we hope that this will basically help us in profitability as we go forward. And I must say, I must thank also our customers who showed a lot of understanding that the situation in which we are in was quite dramatic and also quite exceptional, I think, compared to previous business practices. Thank you.

Thank you. Ivar, for you, I'm very sorry that I think I missed the numerous guidance that you had for the first quarter on the cost of lease. If you also said something on price, could you just shortly repeat the cost, the numerous guidance that you had for Q1?

Yeah, hi, good morning, Christian. Sure, I can do the short version then. So I don't want to bore everyone. Same thing I said. But why don't I start with the cost piece? So we did obviously add some numbers for Q4 to Q3. But for Q1, then when you compare that to Q4, the number we have is 270 million. And the short version there is that North America is flat. So all of it is coming from Europe, and that is fiber pulpwood, roughly 150 million, energy, 100, and chemicals, 20. Now, in terms of pricing, it's starting to be quite a bit mixed bag. We start now to see more of a contraction more than anything else for the categories. I think there's two exceptions, liquid packaging. We obviously have a you know, a good solid contribution of positive pricing from beginning of Q1. We also have a bit of a help from speciality in U.S. as a carryover effect. But besides from that, we're starting now to see basically contraction across pretty much every category, container board, carbon board coming down, same for brown and white stack and also cross paper. So we have an estimate of roughly 2.5% of our material sales quarter over quarter, and that should be in the area of 250 million SEC Q1 versus Q4 as a negative pricing impact for the company. Thanks very much for that clarification, Eva.

Thank you. We will now go to our next question. One moment, please. And your next question comes from the line of Robin Santaverta from Carnegie. Please go ahead. Your line is open.

Thank you very much, and good morning, everybody. First of all, related to the production disturbance you had in December, what was that about, where, and is this something that is isolated for Q4, or is there any impact that you expect for Q1 as well?

Good morning, Robin. Short answer is the disturbances was basically difficulty in startups. It touched a number of mills, totally disconnected from each other in terms of events. And it's more the sum together which makes it quite of a significant number. So I think most of that you can assume that this will not happen again. At least we don't plan for that. And I think things are well under control in a much better situation that we have previously been in, but from time to time these things can happen. So I don't see this as any significance, but I just wanted to make sure that you understand that the results in quarter four, in particular on carton board, were quite influenced because it really happened more or less focused on our carton board mills. Thank you.

I understand that. Thank you very much, Kristoff. The second question I have is on pulpwood availability in Sweden. How do you see that situation panning out at the moment? Do you sort of plan to go ahead as you have done before? You buy mostly in Sweden, a bit in the Baltics, or is it a situation where it could make sense to start to look at Latin American yucca chips or then wood chips from North America?

Okay, so yes, so you're absolutely right. As you remember, we missed about 15 million cubic meters coming out of Russia starting from the beginning of the war, and that created across Finland, Sweden, Baltic states, etc., a lot of uncertainty in the market and also some market adjustments. Okay, so just the context again. What we have done, I think we have been very successful to to basically mitigate all the uncertainties and supply shortages that some of us have seen over this year. And overall, we are very satisfied with the outcome. When it comes to overall wood supply in Sweden, you know my view on that. I think Sweden is probably at maximum capacity at this stage, and probably Finland as well. You all know about the discussion at the European Union level about what is the role of the forest. Is it the productive raw material which absorbs carbon or is it the carbon thing where you basically do nothing? And some of these policy clearly will have an impact in the future. And that is why we have a very clear strategy of widening our wood sourcing strategy where we're investigating different sources. A big object in that is clearly Norway, which our joint venture with Vikenskog, which is around BCTMP production, but also about wood supply from Norway into our Swedish mill system. And just to remind you, I mean, Vikenskog's main area is about 200 kilometers from Gruven, so it is by any means a big challenge when it comes to logistics. Secondly, you're absolutely right, we're exploring different forms of pulp chips and whatever it is across the world, including from our sources in North America. But I think wood prices overall are not yet at the level that you would actually consider this at scale. Where I'm very confident is that we have now a good strategy in place. Good discussion also with our partners in the forest industry. And our approach between short, so basically short-term purchases and more long-term contracts is also in a much better state than it was maybe two years ago. So overall, I'm very confident that we're in a good position on that. But you're absolutely right. I think the Swedish wood market as such is is feeling the effect on the closing of the border with Russia and is also feeling the strain in the political discussion around the forest and its future.

For sure. Thank you for that detailed answer. A final quick one on Verso performing exceptionally well, so well done on that. What is the output for the market balance on Verso? for the North American business now going into 2023?

Okay, so let me answer that question in two parts. We have two main markets. One is graphic paper and one is speciality paper. In graphic paper, we see a level of good stability with holding prices and a little bit softer volume as people are reconsidering their marketing plans based on the economic environment in the U.S. As you know, we are a big supplier to premium catalogs and to commercial printing. And on the speciality paper side, the situation looks very good. It has to do with two things. A, the market, as you know, is growing. And on the other hand, there are some players who, one in particular, has left the market at the beginning of this year. which makes basically the market balance quite positive in view of producers. There's a bit more in the US. The statistic in November and December comes mainly from ordering because there was a shortage for a while and the supply arrived basically for everyone at the same time. I believe this imports into the US will stabilize at the normal level as we go forward. And therefore, I believe the U.S. has a good chance to have a good stability in the market, which makes us believe that our business performance will continue to be good.

Thank you very much. Thank you.

Thank you. We'll now go to our next question. One moment, please. And your next question comes from the line of Oscar Lindstrom from Danske Bank. Please go ahead. Your line is open.

Yes. Good morning, gentlemen. Three questions for me. The first one is on cost inflation. Ivar, did I hear you say that cost inflation is slowing? And if so, what signs are you seeing here and where? And also, You talked about the outlook for pulpwood, which is obviously your most important cost item. But I was wondering a little bit about the chemicals and caustic soda situation in particular, which we hear is, you know, prices are up sharply and perhaps availability is slower. So that is my first question.

Oscar, good morning. Can I just maybe get all of your three at once and then we will take them?

Yeah, certainly. My second question is... on the solutions and other business. Here we still saw red numbers or earnings last year despite it being an otherwise very good year. Is this the other part that's dragging it down or is the solutions business still loss-making? And if so, what will it take to improve profitability in that business? And then finally, you talked about customers reducing inventories. And you guided for pricing in Q1. Do you have any feeling for what's happening with volumes in Q1? Those are the three questions. So cost inflation, including caustic soda, the solutions business, and volume outlook for Q1.

Why don't we actually flip it around? Do you want to start with the last question to you, Christoph?

Yeah, with customers and destocking. Hey, I think my read of the market is the following. Do you remember 21, 22 coming out of COVID? Basically, there were big disruptions in logistics. There was a sense there was some shortening in the market on products. And I think a lot of the brand owners and customers then basically said, went after to order maybe a little bit more that they normally needed because they didn't want to run out of material. And clearly our material for brand owners represent a very small portion of their costs and therefore it's actually quite a smart strategy to have a little bit more stock in times of insecurity. So I think what happening now is that logistic as you know has a little bit, you know, the strains are gone and flowing much better and Therefore, brand owner and customers are now reviewing their stocks and have started in quarter four, I think, to go back to normal levels. And that is absolutely normal, so I'm not particularly worried about that. And this basically is also probably going into quarter one as we speak. The second part of the softening volume and the stocks is really the outlook. So I think most people, maybe except food and drink sites, are basically looking at what is the industry doing. I think I cannot hide from you, cement is not a good business today, and we have big supply of cement bags. And here we see not just the stocking, but also lower order levels. And the flashing through of some of the materials will take a little bit more time. So that is our view. We do not clearly have... We do not have a very good view on the brand owners and the end customers, but we have a pretty good view on our conversions. We are providing this packaging material. And therefore, in our current view is between quarter four this year and quarter one next year, that stock situation should have been normalized. And then it depends more and more on the economic development in Europe. Eva, one and two.

Yes, so good morning, Oscar. So going into your first question around cost inflation, and I think you asked this from two different angles. I mean, we did already mention on the pop-up side, we expect inflation going into Q1 versus Q4. I think it's difficult to give any other number beyond that, so we won't. But I think in general, you can say that we see very clear signs that the pricing on hardwood in Baltic is slowing down and coming down actually quite a bit. Can I ask you?

Oskar, could you put on mute? We get some noise from your line, I believe. Thank you, and then come back.

Thank you. Please, Ivo. Yes, so on hardwood in Baltic, we definitely see that the prices are starting to come down now from a very high level. It has to be said. I think in Sweden, in general, it's a bit mixed. I think also Christoph alluded to that. There has been some price and tax announced coming through in the late Q4 and beginning of this quarter. Now, we do see in general, if you use the big brush here, that there is a definitive expectation of lower activity, slower volume in general in the industry for 2023, as demand has slowed down and everything else equal, that should put less pressure on the pop-up demand in general, and that should calm the situation down and even start to see some costs coming down in Q2. But I do not want to put a number on that for now. I think on chemicals in general, I mean, it's a little bit different situation between the region, but you can say that the overarching principle is that the energy And chemical price correlation is what you kind of need to look after. And there's also a bit of a lag between when the prices are announced to hit our P&L based on a contract. So, you know, who knows what the energy situation will be on. But for the time being, we also see that things have calmed down or, you know, not as extreme quarter over quarter in terms of the energy picture. So we are you can say cautiously optimistic that we get the small tail now of chemicals increase Q1 and Q4, as I mentioned, but actually then a bit more positive that we start to be stable and to be maybe even more optimistic, a slight decline going into Q2 and onwards. Now, to your last questions about the solutions, I think the best table, probably you looked at that as well, is page 21 in the report, where they strip out the currency hedging and also any other items impacting comparability. And actually had positive number on that as well. I think the solution other by nature, it has managed packaging in it. That's the bigger item, but it also has other things. I mean, group items, we also have services we do on forestry, et cetera. So it's definitely a mixed bag with some ups and downs. But I can say that with a big piece around managed packaging, We actually had a very good development during 2022, and we managed definitely to move that piece from a, let's call it, break even to slightly negative past years to actually make some percentage points profit this year. Now, it's not too much, but it's also no asset business, as you know, so we are very happy to see that we turned that business into good profitability territory for 2022. Thank you.

Thank you. We will now go to our next question. And the next question comes from the line of Linus Larson from SEB. Please go ahead, your line is open.

Thanks and good morning everyone. Continuing on pricing and maybe specifically on board, do you expect higher or lower board prices in Q1 compared to Q4 for the division as a whole?

Yeah, no, good morning, Linus. I can take that. We definitely expect to see pricing to fall down for board in total. I can say that that is then a function of good pricing help on this with packaging. But as I mentioned, the train is moving quite fast now in the negative direction on container board and carton board.

Great. That's very clear. And what did you say? Could you just repeat? I think you said a figure for the price impact Q1 on Q4 for the group as a whole. Could you please repeat that?

Yeah. So we expect an area of minus 2.5%. If you look at the material net sales, that should be in the area of 250 million quarter over quarter as a negative impact.

Fantastic. Then I got you right. And then maybe, yeah, I don't know if you want to go into that, but you said something like, I think, Christoph, you said that costs are at its peak now. And I don't know if you mean in like a very general context, or do you actually expect Q2 compared to Q1 to have lower input costs or flat input costs, or how do you see that?

I think that was more a general statement because we see different pictures in the U.S. and in Europe. And as you know, a lot of the input costs, especially chemicals and such, will be driven by energy costs, okay? I trust you have as a good crystal ball as I. So I think we are now in a situation where energy hopefully will be more stable, but who knows. So more general comment when we look at Europe and North America.

Okay. And if you then take specifically wood costs, you elaborated a bit on the Baltics and the and new sources and so forth, and you have a bit of visibility there. So do you expect, when do you expect that to peak, if you look specifically on the woodcast?

Eva, do you want to take that? Yeah, as I said, I think hardwood now, we start actually to see signs that we are might oncoming, and we should probably already... feel some help on hardwood end of this quarter and also going into to the next uh quarter uh now software is the big piece and that is the majority of the um hope will be sourced from and it's a bit more tricky to say we know that on the kind of q1 muscle q4 we will get a hurt due to the announcement that has been made in the market over the last few months but as i just I guess can repeat, I think there is more and more signs in the industry that rolling this something down production will be taken down through curtailment and slow steam and everything else equal that should put quite a bit less pressure on the market and clear indication that we might see a price thing before the summer onwards. But I don't want to give a number on that estimate.

That's fair. That's very helpful. Thank you very much for that. And then just finally on your dividend and maybe if you could clarify your dividend policy and I really don't mean to be what you call it in German or anything like that but I think you've stated that your dividend policy is minimum 50% of net profit and now you're paying 41%. Could you just reiterate is this Is this over the cycle, or what's the clear message in terms of dividend policy, please?

Okay, so I think, first of all, this is clearly a board question, and the board came to the conclusion that in view of the projects we are having, the good performance we are having, that we should increase our dividend by 30%, which I think is a fantastic increase, and on top of that pay a special dividend. As you, of two crowners, so overall, I mean, we are at 40%. As you know, despite having had this dividend policy for many, many years, Billerud over time has paid, you know, in a range above and below 50%. And I think it is always the intention to be close to that number. But at the end of the day, it's the board's decision. And the board, I think, very wisely said, hey, we want a very good increase of the ordinary dividend and we want to pay a special dividend because of this extraordinary and very special year we had in 2022.

Okay, thank you. Thank you. We will now go to our next question. One moment, please. And the next question comes from the line of Martin Malby from ABGSC. Please go ahead. Your line is open.

Good morning. My questions have been answered now, but on the volume side, could you explain that in the same fashion as you did on price and input costs quarter to quarter for Q4 and then also Q1, please?

No, we can start with Q4 versus Q3A. And you can say that we are definitely at least 60,000 tons short versus what we had thought going into that quarter. It hits both regions, so this is not a Europe versus US item. And I can say that it's inventory adjustment that hit us, you can say, both maybe harder and faster. than we might have expected and a clear slowdown in some of the categories. So it's a bit difficult to pinpoint exactly how much goes into what bucket of that, but those two are clearly the biggest drivers. Yeah, we've had some challenges I mentioned on the production in some of the board mails that might have been up to 15,000, we could have sold more. It's a bit of an opportunity cost if you use it like that, in particular for liquid packaging. But you can say we had a quarter definitely where We were not truly happy with our volume performance. Don't probably want to give a volume guidance per se on Q1, but I can say that we expect a lot of the drivers to continue and probably a bit worsen going into Q1. So definitely we expect a lower volume performance in Q1 versus what we saw in Q4. And I think, again, it's a continuation of still an inventory adjustment in many of our customers, and the sentiment has gone worse in terms of the demand over Q4.

Thank you. Two more questions. You mentioned a one-off that would not be repeated when you talked on slide 13. What was that? And the last question on liquid packaging board. What was the price increase, and is this relevant for your entire volume, please?

Yeah, I can start with the first, and then I let Christoph answer the liquid packaging part. Now, the item we talked about on the board was 145 million, and you can say that is a function of what we had in pretty much all of our board meals, and also a bit outside of that into your paper, some, well, troublesome Incidents, there's, as Christoph mentioned, no big correlation and not a major one, but we just had overall a pretty disappointing efficiency performance in the mills. That incurs extra costs that they need to take out, taking more external technician service, etc. It also incurred quite extra overtime in the mills to sort these unforeseen issues out. So you see that aggregated number. And everything else, we do not obviously plan to have this in Q1. And that means that item should go away. Christoph, do you want to comment on the liquid package?

Well, I cannot really comment. But we increase prices across all our customer base. And I think that's all I can say about that. And that will help us in Q1 and hopefully in the rest of the year. And I think there were appropriate, reasonable price increases. Thank you.

Thank you. As a reminder, if you wish to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. If you would like to ask a question, please register with your first and last name and company. We will now go to our next question. One moment please. And your next question comes from the line of Jasper Mathanda from Dagens Industry. Please go ahead. Your line is open.

Thank you. Good morning and congratulations on a very strong full year. I have a question regarding the conversion plans for North America. If at all possible, can you share any insights from the pre-feasibility study? and or give an update on how the U.S. board market has evolved since the acquisition. In other words, how the environment in which the strategic decision was made has changed. Thank you.

Okay, good morning, Jesper. Our conversion plan. Look, we're in the middle of the pre-feasibility. We are getting more and more information in. The only thing I can really say, there's no red flags, which is what we are always worried about when we start these studies. So all the key items and the due diligence have been confirmed. Now, clearly, the work continues. You're aware that some of the costs and some of the timings of delivery have changed since the beginning of the war. And therefore, the team is working through that. basically planned to finalize this by the end of quarter two. So we hope to have either in quarter two already or in early quarter three a discussion with our board. And if then we come to a positive decision, we will clearly make a statement where we then have probably an indicative approach to numbers and definitely a timeline in which we want to realize that project. When it comes to the carton board market, I think I just give you a general perspective. I think our announcement to buying Verso had made noise in the market in the U.S. I think you have heard about the announcement from SAPI. You heard about the announcement of more imports from maybe from Europe out of Europe into the U.S., which tells us we're definitely on the right track. We have an incredibly good first mover advantage. because we are already exporting the same product that we will produce in the U.S. to the U.S. now. With the acquisition of Verso Business, Billiard North America is now able to set up a proper professional route to market, which was clearly a little bit more simpler initially. And we have started to have very good discussions with potential and existing customers, which are very keen on our development in Escanaba. So I think I will stop there. Eva, do you want to add anything to it? No?

I think it was very good for speaking.

Okay. So that is how we see it. And it's a growing market. So we are very confident that we are on the right track.

Okay. Thank you. Thank you. We will now go to our next question. And the next question comes from the line of Johannes Grunzelius from DMV. Please go ahead. Your line is open.

Yes. Hi, everyone. Most of my questions have been answered, but I have two more. Just to clarify that I understand it correctly, are you sort of looking at the coated wood-free prices in the U.S. as stable prices? for this quarter, for the first quarter? And is that what you project stability in those very high prices for coming quarters? That's my first question.

Yeah, hi, good morning, Jonas. Yes, the answer is exactly that. That's the view we have. It's more difficult to say, you know, going on from Q2 and onwards. So that I do not really want to speculate too much on at this stage. But, you know, the situation is still stable. All the indication we have so far is that we will have another quarter now in Q1 with a pretty flat pricing picture.

Okay, that's helpful to know. I mean, I'm just surprised about it, since we have seen indications of more imports, very low inventory levels starting to normalize and that kind of stuff. But still, you don't see the weakness in prices.

No, as I said, we forecast for this quarter a flat situation, more difficult to go further on.

Okay, yeah, good, good. Then I have, I mean, if you can quickly comment on the new cost initiative, because I think that's quite significant for you as an organization and company. I mean, are you targeting mainly their fixed cost, or is it also kind of improvements on the revenue side? Could you give some color of that, please?

Yeah, I think it's a fair point. And you can say we're also setting up the program with all the building blocks, and we will definitely have more examples to share along the way. But I think you should look at the nature of this program is not to go after pure cost per se, but more going after the potential of the company in particular items that sit between functions. And I know that maybe it sounds very fluffy, so I can be a bit more concrete. I mean, I talked about the trim optimization. that we know is the cost and we want to take that down. And that is also something that requires a lot of collaboration between operation and sales or commercial team. We also have items where we go into the recipe optimization, clearly that has an implication on the properties of our products. And that again, reads requirements from both supply and operation and commercial combined. I think also streamlining even better So when we know what runs on product lines on our machines and minimize downtime, it is not something one function can do per se. All of these items I mentioned will have impact on either variable costs, also just in terms of driving net sales a ton or more efficiency out. So I think that's the best thing I can say at the moment. We will come back further down the line with even more examples when we see actuals popping in for the year, etc.

Yeah, that's helpful. And your target, I mean, that is to have 400 million kicking in at the end of the year as a run rate improvement, right?

No. No, good clarification. We expect a year-over-year. So you can say that we expect 23 versus 22 to deliver a 400 million net impact.

Okay. Okay. That's good to know. Okay. Thank you very much. Thank you. Bye.

Thank you. We will now go to our next question. One moment, please. And your next question comes from the line of Cole Harthorn from Jefferies. Please go ahead. Your line is open.

Good morning. Thanks for taking my question. Just a clarification on product area board. Should we rewrite in thinking the costs were higher, liquid packaging board, you weren't able to raise the prices, but now as you go into Q1, you should get a bit more of a pricing benefit and you don't have that one-off. So, you know, sequentially, should we be in a better position in that product area board in Q1 versus 4Q is the first question. And the second question, could you give some color on, you know, the second specialty craft markets in Europe, you know, pricing is holding up? What is the reason for that? Has demand been okay or? Is the cost curve moved up for a lot of the high-cost producers that is keeping the prices up in SACcraft, in that market? Just any color you could provide would be helpful.

Thank you. Right. So, good morning, Cole. No, as I said, I think for product area board, right, you will get a bit of a mixed bag. You will get some help from pricing on... liquid packaging, as we just mentioned. I also, I think, answered Linus that net for the whole area, given container board and carton board, is coming down quite sharply. The whole product area will come down quarter over quarter when you look at that kind of net pricing impact. You do get, as you mentioned, a 145 help. If that is clearly what you're expecting, given we do not foresee to bring some of those challenges into So there will be some pluses and minuses there. I can confirm that. Now, in terms of the second speciality, I think I can maybe start with this piece. And you do see a lot of the similarities for the brown and white. I mean, market is definitely softening and slowing down quite a bit. I think we still see customers sitting on pretty good level of inventory. I think there's also a sentiment now that economic activity is slowing down. So the order books is certainly weak when we look at that pipeline right now. Clearly that means that we see clear signs in the industry that all players now is chasing volume across the board and activating new customers. So I think it's fair to say we would see slower volume and also price erosion in that quarter, and I think that's probably accelerating now in Q1 versus what we see in Q4. I think on the graph paper, it's maybe a little bit different. I think MG is holding up a bit better, but I think also we see on the MF pretty similar signs that we had on SAC, that the slowness is definitely a bit more aggressive than what we see in Q4. I think also it's clear that we have Sigessa that is still active, and that also is in the Middle East area quite aggressive. We've had that as a region before that we used, and clearly that is not a really good region for us anymore, given how it seems to be quite a flooded product in that. So we activate also other channels and regionals. Do you have anything to add, Christoph, on your side?

Yeah, I think My view, you know my view, my view tends to be much more longer term. And I think the fundamentals of the company, nothing has changed. I think we have a very stable approach to where we go with our strategy. And I think we will now live a softer quarter as we had in quarter four. We go in a softer quarter in quarter one. And then basically my expectation is that the market will recover as soon as the stock level is through. And then let's hope for the best for the economic development, which I believe has already improved a little bit when it comes to the expectation compared to what we discussed in November and December about the future outlook. So I think we will have a very reasonable year in 2023 as well. And I think with that, we will close the call and I will hand over to you, operator. Thank you very much for your time and your attention. And I'm looking forward to talk to you in the coming days or in our next quarter, one report somewhere in April. Thank you.

Thank you. This does conclude our conference for today. Thanks for participating. You may now disconnect.