BillerudKorsnäs AB (publ)

Hello and welcome to the Billerud Q3 Report 2023. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star 1 1 on your telephone to join the queue. To withdraw your question, press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lina Shatawa, Head of IR. Please go ahead.

Good morning and thanks for joining this conference call following the publication of the Billerud's interim report for the third quarter 2023. The results will be presented by Ivar Wattne and Andrei Kriess. And after the presentation, we will open up for questions. By that, I hand over to the speakers. Ivar, please go ahead.

Thank you, Lena. And good morning, everyone. And thanks for joining. I'm excited to present the Q3 beta result together here with André for the first time as acting CFO. We have an unusual eventful report this time around, so we better get straight to it. So next slide, please. And overall, we are pleased with the result we delivered this quarter for Q3. We've seen progress on several fronts where we have mobilized the focus of the company, which is highly encouraging. Versus a year ago, we are down on most KPIs, but we're also meeting a very high baseline period in also very different market conditions. However, sequentially, or versus Q2, we made strong progress, particularly on the profitability side, where we landed on 11% EBITDA. Sales volume are up versus Q2 for both Europe and North America, but that impact is fully offset by price deterioration and negative mix. Input cost has also come down versus last quarter from peak levels. On top of this, we've had lower than normalized fixed cost activity over the quarter, more related to timing and seasonality. One of the biggest priorities for the company is our efficiency enhancement program, and we delivered well on the quarter, and we are on track to deliver our ambition for 2023. We also had an excellent cash flow this quarter, enabled by continued focus on working capital discipline. And lastly, on this slide, I mean, we are proud of being able to complete a three-year recovery boiler project on time, on spec, and on budget. So let's continue with the financial breaches. So next slide, please. So starting with the top line, we're down in net sales for both regions versus a year ago, mostly North America with heavily reduced volumes. where the customer de-stocking has been the most prominent effect. We continue to see negative mix impact, both on category and on customer side. And for the first time in quite some quarters, we're now seeing negative pricing impact versus year ago, mainly on container board, pulp, and second craft. Some help we've had on the currency linked to development of the weak Swedish krona. So next slide, please. And moving over to the profitability bridge, There are several sizable negative building blocks versus a year ago. We already mentioned the pricing and volume mix, but we are on top facing additional input cost inflation, roughly 300 million versus a year ago. The 175 million impact over efficiency enhancement program is already something we talked about, and it's a clear highlight for us this quarter. The other bucket is unusually big this time around of minus 419 million, where the two biggest items are. Impact from the inventory revaluation, just out of 300 million negative, and you should read that as 230 million positive in Q3 2022, and minus 65 million now in Q3 2023. The other point to mention here is the insurance proceeds of 75 million for Gävle incident back in 2019, which we received in Q3 last year, meaning that one sits in our base. Last point I just want to mention on this slide is that we have quite a big item on the maintenance bucket, more than 500 million positive. This is first and foremost related to the very significant upgrade, the stop in our QINISEC mill last year, which is obviously not something we repeated this year. Next slide, please. So over to some general market comments. And in a nutshell, you can say that marketing condition has remained relatively unchanged. versus what we experienced in Q2, meaning that most categories are still operating what we at least would define as weak conditions. It means overall soft demand and price pressure across. Going a bit more into details per channel, food and drinks, that is our best performing channel, and that is also what you would expect in categories that tend to be more resilient through the market cycles. And having said that, it's still quite challenging condition for most of the categories within food and drink, VDEC section being Libre Packaging Board, which has characteristics of a more normalized level. Printing and publishing remain weak. Still slow demand with customary stocking being the main theme. Pricing holding up incredibly well, though, despite these conditions. Consumer luxury, overall weak condition. Demand is soft and adds to negative pricing pressure. And lastly, on this one, industrial, probably the channel where we're most under pressure right now. I think the whole market would probably say the same. Sacked paper is certainly in tough conditions, not least a brown bag with exposure to construction and cement. Going into Q4, we are not expecting very different marketing condition versus what we've seen in Q3, so it's relatively stable across. And with that, I hand it over to André.

Thank you, Ivar, and good morning, everyone. Let's start by looking at Europe. Next slide, please. Net sales for the region declined by 8% versus a year ago, and the decline was driven by lower pricing for all categories except liquid packaging board, but also negative category mix with higher pulp sales. Liquid packaging board showed a solid net sales performance with 18% growth versus a year ago. That was due to combination of both higher pricing and higher volumes. The total sales volumes for the region declined with 1% compared to last year. In addition to the negative pricing and mix, the profitability for the region has been impacted by the input cost increase, which led to an EBTA decrease of 49%. If we look sequentially, we have a bit different picture. We are very pleased with the volume growth of 7% compared to the second quarter. But despite the volume growth in the quarter, we saw continued weak conditions for the categories, with price pressure across all categories except liquid packaging board. We expect that the prices for second craft segments will continue to deteriorate into quarter four, while pricing for other categories should remain relatively stable with some negative mix impact. Fixed costs for the region were down significantly versus previous quarter. That was related to the seasonality and timing of the fixed costs. These effects positively impacted the profit for the region with approximately 210 million, and we will reverse those back in quarter four. Input costs decreased sequentially with approximately 200 million for the region. Next slide, please. So some more color on the input cost development for the region. Most of the input costs came down during the quarter with the exception for fiber. Our fiber cost peak during the quarter and we're up 40 million compared to second quarter with pulpwood up 80 million and that was offset by lower purchase pulp prices. We implemented the price decrease on our pulpwood price list during the quarter and expect the current price list to remain. The most significant cost relief came from lower cost of chemicals, decreasing sequentially with 130 million. Energy was down 20 million and logistics 90 million, as we saw the new overseas contract yielding the savings. Heading into the fourth quarter, we do expect to see about 100 million in additional cost And that is more or less entirely coming from lower cost of fiber. We expect the other cost items to have only minor correction on prices. The cost guidance now assumes that we remain on October levels in terms of electricity prices. We have currently 67% of our electricity exposure hedged in Sweden, which is a bit lower than we usually tend to have. So we are a bit more exposed here. And then moving to US and next slide, please. Net sales for North America declined with 24% versus a year ago with volumes down 19%. And also due to the weak demand for paper grades, we have increased the pulp sales, which is having a negative mix on the sales. EBITDA in absolute terms was down 11% versus a year ago, but margin wise, we improved with two percentage points. as we have been able to adjust our cost base to the lower demand. And also, last year was impacted by the Quinnisec outage in quarter three. If we look sequentially, we're also pleased with the volume growth in North America, which was 7% in line with what we saw in Europe. But also here, the demand remained weak during the quarter, and we definitely saw continued effect from destocking. However, we do expect the destocking to be largely completed in quarter four. We continue to adapt our production to the low demand and our mills operated at below 60%, however, at a higher rate than in quarter two. The pricing for graphic paper was stable in the quarter while pricing for speciality and pulp were down. Both graphic and speciality pricing remained high. and were above the corresponding level last year. Going into quarter four, we expect pricing to hold firm with only minor pockets of pricing pressure within the categories. Next slide, please. The North American input cost situation remained stable during the quarter. Total input cost decreased with 25 million versus previous quarter. and that was primarily driven by pulpwood and chemicals costs. Logistics costs were slightly up, but that was offset by lower energy costs. Heading into quarter four, we anticipate relatively flat development with only minor movements, and that should in total bring us a cost relief of approximately 25 million. Next slide, please. And as Ivar mentioned, we are very pleased with our cash flow performance in the quarter with operating cash flow conversion of 93%. The strong performance was enabled by our focus on working capital, which is now at 13% of our net sales. And we remain focused on improving our working capital position going further. Leverage increased slightly to 1.4, but it's still below our maximum target of 2.5. And now a milestone in the quarter was the development of our US pension plan funding status. As you might remember, when we acquired Verso Business in 2022, the operations had essentially only one debt item, which was the US pension plan at 900 million. At the end of this quarter, the plan was fully funded, and that was made possible by our contribution since the acquisition of 400 million. and also favorable discount rate development. In terms of capital allocation, CAPEX for this year will be 3 billion, which is 100 million higher compared to our guidance and quarter two call. And this increase is related to the movement of the Frövi recovery boiler project. For next year, we target CAPEX of 2.3 billion with final payment for the Frövi recovery boiler of 100 million. and base capex of 2.2 billion combined for both regions. And with that, I would like to hand it back to Ivar.

Thank you, André. So in order to drive further efficiencies, improve our long-term competitiveness, we have decided to reduce our global workforce with up to 350 positions. And it's never been a light heart. We reached this decision and of this magnitude, But it's our belief that it's needed for Billerud to continue to be well positioned going forward. The reduction program will impact both region and also corporate functions. And we will now commence negotiation and dialogue with the union as soon as possible. We expect the reduction to yield annualized saving of 300 million with the majority of the run rate savings heading towards the end of 2024. Restructuring cost of 100 million will be recorded for the fourth quarter, and it will also be reported as item affecting comparability. Next slide, please. So as it was mentioned in the beginning of the call, we are progressing well in efficiency program, and we accelerated the delivery now in Q3, where we added 175 million. And you can see in the gray box at the bottom of the chart some examples of where we achieved good progress during the quarter. also means that we are on track to deliver our ambition of 600 million savings for 2023. Our effort and focus is now starting to shift towards making good plans for 2024 and this will continue for the coming months. We set the bar quite high going into next year delivering additional 700 million versus 2023 and if we will be successful It means that we're well ahead of our ongoing ambition to deliver the 1.5 billion set by end of 2025. The FTE reduction plan we just went through, it will be included in the program and is likely one of the biggest building blocks that we have identified for 2024. Next slide, please. And yeah, it was mentioned also in the beginning, but some words about the three-way recovery boiler. The project is now completed. and has been put into operation. And I have to say, I'm very proud to inform that we are on time, on spec, and on budget for this complex project, which has not been a small achievement, I can tell you. Then you consider that most of this project had to be executed during COVID times, and in general, facing an extreme challenging supply chain condition. The new boiler will enable a cleaner and more effective energy use and could allow for higher pulp production in the future. it certainly will cement Fröby as one of the core billiard mills for the decades to come. Next slide, please. So I want to spend some minutes on our North American business and our transformation program. And going back 18 months from when we took over Verso, we are very pleased with the result, driven by strong margin and cash generation. And it certainly has exceeded our expectation in many ways. I mean, in fact, we generated almost 50% of the net acquisitions value in operating cash flow over the last one and a half years, which is truly remarkable. We are more confident now in strengthening, I believe, of the strategic fit the youth transformation program has for Billiard. And it remains the company's most important priority. However, the economic conditions have changed dramatically over the past two years, and we will need to adapt to this fact. It means we will be taking our time to evaluate new alternatives of the transformation program. And key for us is to land on a case that meets our strategic objectives, but at the same time delivers strong project financials and generate shareholder value. We will therefore not decide on the complete US transformation investment program by the end of this year, as previously announced. Did you not have a new timing estimate at this stage? But we will revert back when ready. And meanwhile, we will continue to build up our U.S. commercial base of paperboard to export from Europe. And this is exactly as per plan that we will have a strong customer foundation to stand on the day we would have local paperboard production in North America. Next slide, please. We continue to execute on our strategy and focusing on the core offering of packaging materials. It means we had divested some additional assets in the quarter. Our managed packaging business has been sold to Mimir Invest, and that transaction was closed late August. We've also divested our ownership in the paper bottle company to our joint venture partner, Alpla. And the P&L impact of these two items are minus 29 million and was recorded as item affecting comparability for Q3. On top, we have an ongoing process to divest some non-strategic forest land, but there's no new news at this stage to report. So next slide, please. So to round it up, conditions for Q4, largely unchanged versus what we experienced in Q3. We do expect the customer destocking to be largely completed by year end, but you would expect to see weak demand in the wake of tough microeconomic environment. Negative mix for most categories. and some price pressure, first and foremost, within SAC and craft paper. They will partly offset its impact by lower input costs. And we are taking further steps to drive efficiency and securing Billiards' long-term competitiveness by reducing up to 350 positions. And with that, I hand it back to Operator for Q&A.

Thank you. As a reminder, if you wish to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we prepare the first question. Your first question comes from Robin at Center Virta at Carnegie. Robin, your line is open. Please go ahead.

Thank you very much and good morning, everybody. A couple of questions. If I start with your operations in Europe, you have a quite significant Q1Q improvement. And as I understand, it's gone come from volume growth, the cost cutting or rationalization program, the fixed cost reduction, seasonality, and then the lower input cost. But did you mention what was the sales price impact Q1, Q2, and Q3? And what should we expect for Q4 when it comes to sales price impact on earnings in Europe?

Yes, hi, Robin. So in terms of pricing, if we look sequentially for the European business, the pricing declined with approximately 4%. That was a combination of mix and pricing. Heading into quarter four, as I mentioned, we primarily see that the prices will decrease within SAC and Croft business. So we expect the prices to decrease with 2.5%.

All right. Thank you very much. And if I could ask, what are you seeing in terms of order intake at the moment in Europe? You say the stock in the supply chain and downstream is starting to come to an end. Are you seeing better order intake at the moment in your European business overall compared to what you saw, say, three months ago when you reported Q2?

Yeah.

Hi.

Good morning, Robin. Fair question. And probably I need to split that up through the different categories for it to make sense. I mean, it's probably the easy one to start with liquid packaging. As I mentioned, that's usually the most resilient category we have. And we haven't seen any major change, as you probably would expect. So that's pretty stable. When you go into container boards, for us that would be the liner and the fluting. I guess it's our view that we are likely on the way out of the bottom of the curve. Certainly Q3 was better than Q2. And we definitely feel the machines in a much better way than what we did in the beginning of the year. Um, it's not all blue sky though, because you can say all the volumes that are there is still pretty hefty price pressure. And also we are in some sense hit by negative and mixed impact, but I can confirm that we are a little bit more optimistic on container board than probably some of other categories and more optimistic that, you know, the recovery has started and going into kind of Q4 and 2024. Uh, if I just go quickly through some other ones, I'm in carton board. Not as strong, and that's still a tough sentiment. Slow markets, soft demand. I think that's also by the nature of that category, where we have at least pretty good exposure into luxury items that certainly suffer now with disposable income starting to be challenged for a big part of the European business. So we expect volume going forward to be relatively flat. We are picking up a bit more with some of our customers that there's a more intense dialogue on certain projects and there's a bit more interest to get going. So you can say it's early signs that we might see some recovery also there, but that is still a bit further out. And our view is that we are a little bit more into 24 before we see carton board starting to come up. So certainly for the rest of the year now, carton board should not be a much more aggressive volume. And I think for paper, if I do this quickly, because I mean, we have a certain different segment, but SAC in general, you can say that it's tough in particular, the Brown SAC. I mean, order books have been quite okay and early Q4, but it's also just a lot of, you know, capacity out there and it's definitely price pressure. So in this case, chasing volume, which is less attractive and negative mix impacted. We are quite, let's call it cautious, and yeah, not at all optimistic on brown sac for the time being. White sac, not much difference, still soft, and there you know we have Europe as our main market. And I think some of our sales guys even refer to this that right now it almost feel like it's dead. Typically if you go into construction and industry, it's weak, you know, food is better in this case, but still not, good. So yeah, maybe a little bit better than the brown sac, but still tough for the rest of the year. And I think on craft paper, yeah, you can say that it depends also when you talk about MG versus MF, but relatively cautious, not something that we currently can say a lot of evidence that order books maybe a little bit better on the volume in Q3 and holding it stable, but we are certainly not saying that they are as positive as the at the moment feel we can save for container boards.

Thank you. And if I just chip in with one additional question, it's related to your North American business. Operating rates for you guys and for other producers are quite low or very low at the moment. Still sales prices in most segments are quite high. What is the outlook, you said, look for roughly unchanged prices in Q4. But first of all, why are not prices coming down? And do you see risk that we see price declines in North America in 2024?

Yeah, I mean, it's a fair question. And I have to say, you know, we've also been extremely impressed on how we managed a very difficult time in the US. I mean, it's almost counterintuitive to make money when we have a capacity utilization of close to 60%. I think we also keep in mind that there's very few suppliers of graphic paper in domestic in the US at the moment. That certainly plays in as well. And there is maybe a little bit different sentiment now than it used to be during the COVID where people maybe are afraid of leaning towards import to the same extent that they used to be in the past. I mean, I think what we're seeing is that still that destocking on graphic takes its time, and it was very extreme on that category. It's kind of coming towards the end, but we still feel that in Q4. There's also some big events in the US coming up in 24, like the election, et cetera. So you can say that, hey, we might start to see some more pickup volume-wise when we're coming mid or a little bit further out to 24. But yeah, still. kind of flat and careful for the rest of this year, a bit better on volume going to next year. I think on pricing, as I mentioned, it's tough to say. It's starting to be some pockets of pressure. We're managing this really well, and that's the best view we have for the time being.

Thank you very much.

Please stand by for your next question. Your next question comes from Linus Larson at SEB. Linus, your line is open. Please go ahead.

Thank you very much, and very good morning, Ivar and Andre. First question on North America in your report, you talk about focusing on the core, and I also see on slide 17 that you talk about focusing on packaging materials. So my question is really how does a very active, graphic paper strategies fit into that, and I do appreciate your commitment to the conversion project in North America, but that aside, it seems as if you have a very active graphic paper strategy in parallel. Is that really necessary according to yourselves?

Yeah, hey, good morning, Linus. So let me start at least trying to answer your question. I think our comment this time around and also when we talk a lot about the focusing on the core is certainly also about taking some of our what we call non-core assets out. And, you know, we mentioned the case of managed packaging and also eliminating our position on the paper company. And we don't know this. So that's certainly part of why that sentence was put out. But you're absolutely right. I mean, that's not a secret. We never bought Verso at the time to sit with that exposure on graphic paper long term. And the play has always been that we would convert to paperboard. That still is the play. So I can still say that we're working on that assumption still, that that will be where we're heading towards. And I just mentioned we are taking our time now to find solution that we feel both fit the strategic play that I just mentioned of focusing on packaging material and coming to a good shareholder value proposition. So we do expect, let's say, if we fast forward some time, that these stars will be aligned, and it's a very good fit with focusing on the core and packaging material versus getting a plan in acceleration in the U.S.

Great, that's very clear. So when you talk about evaluating alternatives, you know, potential divestment in America is also on the table.

Let's just say that I think the strategic fit is so right. And obviously with some of the events in Europe, it just reinforced our hunger to actually put a strong fundament in North America going forward. So that's where we really allocate most of our energy and resources for the time being. But it is true that inflation has been a massive challenge over the last two years. And two years, we might have had our purposes on how this transformation might have been coming out. And now we need to adjust to that. That means we need to think differently. We need to think differently on scope. We need to think different on sequence. And we will need more time. So all I can say that that's where every single one of our energy is going towards. And again, we'll come back and talk about when we are ready.

Great, thanks a lot for that. Maybe if I may, just one more question on the Swedish pulpwood situation, if I understand you right, and please confirm you have seen the peak in terms of pulpwood costs. And relating to that, I'm also thinking what's your view on your production footprint and your pulpwood consumption Are you evaluating restructuring in light of the pulpwood shortage that we are seeing in the region?

That's a good question. I can confirm that we are now looking at more of a stable development going forward. It's starting to come down already in the quarter. So you can say that, yes, we believe that we've passed that peak, but as Andrei mentioned, not a massive amount going forward. I think it's fair to say that the whole premise in Europe has changed, and it has been accelerated by the war in Ukraine. It certainly has shifted a lot of the positions in the market in terms of sourcing pulpwood and fiber. And, you know, as the biggest buyer in the region, we need to take now some clever thinking. What is our play going to be? And there's many different items that we will be looking at. But clearly, we need to look at our portfolio. We need to look about our, let's call it, recipe optimization. We need to look more into lightweight. And this is an important point for us. So let's say that the Europe region has a big task on their hand to think about What are we going to do now, given this new environment, given that this is new, normal to a large extent? And that surely means that we also need to look over our footprint and how it matches our commercial ambition. We're not ready yet to answer more on that, Linus, but I can say that we will certainly come back also in 2024 to talk a little bit about that, hey, our core strategy is intact, that the environment has changed, And these are some of the points that we will now drive in Europe region going forward.

Great, Eva. That's very helpful. Thank you.

Please stand by for your next question. Your next question comes from Cole Haythorn at Jefferies. Cole, your line is open. Please go ahead.

Thanks for taking the question. I'll take them one at a time because they're quite different. The first one is just more technical to understand the current run rate. Andre, you talked about fixed cost savings of about $210 million in the quarter that impacted the EBITDA that's going to reverse into the fourth quarter. I'm just wondering, is there any other items that we should be thinking of that's closer to a one-off that impacted or boosted the three Q numbers because, you know, much better than expectations. And then I've got another one after that.

Yeah. So maybe you just ask the other one calls so I just can write them up and then we take them one by one.

Perfect. The other one is on, you know, the box board conversion. I'm fully supportive of... putting that decision on hold and I just maybe like a little bit more color of what you're thinking about there in the interim because I mean you haven't committed to any capex for that project and I think when there's uncertainty and you don't know the capex numbers it's the right call but in the interim you know will you also be investigating other opportunities for that mill for example you know the option of you know just closing one graphic paper machine in time when it happens or converting into some speciality grades to just kind of understand, you know, what are the other options as well as the box board conversion in the future?

Okay, good. Do you want to start the first, André? Sure. Hi, Carl. So in terms of the fixed costs, I mentioned the figure of 210 million, and that was obviously the impact for Europe region where the impact was the highest. In total, we expect approximately 300 million to come back in quarter four compared to quarter three in terms of fixed costs. And that is split in 210 for Europe, 60 for North America and reminder for corporate functions or within the other.

Good. I jump on to the next point call, which is fair again on the on the box. But no, I can only say that. We are looking clearly at different alternatives. Certainly, that means how we can optimize both Escanaba and Quinacek meal in the best way possible. You know that originally, we went after very clearly the Escanaba start with E4 in particular. And that's still what we're going for. But I can say that the main focus at this stage is to look at how can that be done in a clever way and in creative manners when we look at, again, scope. think that also the how big part of the machine today can be reused, what are absolute necessities to be done in terms of the infrastructure makeup in the mill versus what are some of the points that actually we believe that we can live with. And yeah, it means we had a clear hypothesis in the beginning and we concluded that will not work. So that's why it is a little bit back to the drawing board. Get some more scenarios out. It means certainly working closely with the suppliers in this case to get engineering studied in a good way possible and that will take some time and that's probably much as much as we have at this stage to be honest but I do expect us to to give some further light on this when we come into 24 at least on where we stand on the on the project maybe I just also want to add one important point because I think some of you are aware of this we have been receiving a 200 million grant from the Michigan State, which is obviously a wonderful contribution on this very important project, not only for the Escanaba community, but the whole of Michigan State. And that timing is certainly further down into the future. We're talking more towards 2032. So that is not the point that is stressing us for the time being on getting into the timeframe as soon as possible. So again, we're taking our time. And it's first and foremost on scope and sequence at this stage, but you'll hear from us on where we stand in going into 2024.

Thank you. And then maybe just allow one follow-up is when we're looking at the markets from here, I think people are trying to understand what is the kind of sustainable growth rates for a lot of these end markets. Is there any end market that you're looking at that you think maybe have changed versus last year where you're kind of re-evaluating kind of the longer-term growth profile rather than kind of the short-term destock? I'm talking particularly around maybe SAC or some of those craft papers, specialty craft papers where you're kind of changing your views rather than the liquid packaging board, which I imagine continues to be stable.

No, the short answer is not really. I think all of these categories are very impacted short term on what I would call an extreme party in 22 and a massive hangover in 23. It's destocking all over and that situation through the value chain has been different. So it just has meant that it's very difficult to draw good conclusions on the numbers we've seen. We still believe that kind of what we call the macro trends, and that we look at the substitution from plastic to fiber-based material. We look at e-commerce. You know, that is the driving force in most of the categories we operate in, and that's also why we would see positive growth going forward. That's the underlying foundation that we still work on. It is true, though, that some of the points that surely is a concern for the industry is part of some of the EU directive that is kind of looming in the background. Look at that as TPWR, for instance, which is a pretty big item, which is very hot potato at the moment. We expect that also to change, but clearly that is a very, very important piece for also the outlook and liquid packaging in general. But besides that, I think our core foundation is intact for many of the categories. Thank you.

Thank you. Please stand by for your next question. Your next question comes from Oscar Lindstrom at Danske Bank. Oscar, your line is open. Please go ahead.

Yes, good morning. Three rather quick questions for me. The first one just on the U.S. mill conversion and your review of that project. I mean, you mentioned coming back to us in 2024. Are we talking about sort of early or late in the year? Second question is, given these revised U.S. plans, Are you able to give us any kind of CapEx outlook for 2024 and possibly even 2025? And then finally, you mentioned the U.S. election as having potentially an impact, a positive impact on graphic paper demand in North America next year. What has been the historical impact and then what's your expectation for next year as regards to the impact of the U.S. election on demand? Thank you.

Yeah. Hi. So good morning, Oscar. I'll start. So I think, listen, it's a bit difficult to say when we will come back to you or at least when we have something, because on this right now, we don't even know ourselves on the, you know, when we will have a good plan or we will have concluded on the exercise we're doing. But I can say that it's very natural that I keep you up to date at least on the process and where we stand. So it will be completely reasonable to expect that we comment also this in a Q4 report kind of end of Jan. It doesn't necessarily mean that we have something then to fully share, but that's certainly something that you can expect from us. Sorry, can you just repeat the second question because I didn't fully get it.

Yes. I mean, given your rethink on the U.S., And the ongoing project in Norway, I mean, what's the capex outlook for next year or even 2025? I mean, are you... Yes, what are roughly the numbers that you're thinking about?

Hi, Oskar. I mean, for the next year, we expect a capex of 2.3 billion. and that that is basically the last part of the recovery boiler project of 100 million and then the base capex for the both regions of 2.2 the level of base capex of 2.2 is roughly what we estimate going forward forward you know on a regular basis in terms of the other projects i mean since we haven't made any decision on those uh we are not able to provide the capex split per year for those and but those will of course be communicated when we communicate the decisions.

Yeah. And maybe if I just quickly jump in here. So I think we talked about the use transformation. And as André said, I mean, it's impossible to even talk about anything, given we don't even know when we will come back to you. So that will remain to be seen. I think we have another project. We didn't mention it today in the deck, but it's a Norway project in Fulham. you know, the BCMP mill. I mean, it's progressing as well. We are not expecting to make a decision on that one before the summer, quite close to the summer. So you can say that, yes, if we would find that that project is attractive and something that the board supports, it's reasonable to think that we will get some kind of a tail going into 24. But I wouldn't have any number at this stage, because that also depends on how we land the final stage and the recommendation, et cetera. I think the third, yeah, sorry, the third question you had on this US election on graphic paper demand, it's also a little bit difficult to say. I mean, us per se haven't been in the industry for that long, but what we've seen, and then we talked to the guys who have plenty of experience, And I've seen these two differences that, you know, plus 10% is not unreasonable. We also have Olympics next year, that kind of coincide. And it has been a heavy destocking effect for the Graphic and US. So again, everything else equal, it turns out, well, it points towards having a pretty good volume uplift in Graphic and US. But I would still say that end of this year, maybe going into next year, the customer destocking is the main theme but we are more hopeful then when we go from kind of Q2 and onwards.

Thank you.

Thank you. As a reminder, if you wish to ask a question, please press star 11 on your telephone and wait for your name to be announced. Please stand by for your next question. Your next question comes from Johannes Grunzelius at DNB. Johannes, your line is open. Please go ahead.

Yes, hello everyone, it's Johannes. Maybe I missed this question in the call, but you mentioned that prices are down 2.5%, Q4 versus Q3. I suppose that is for the whole group, if you can just confirm that. And I was also wondering if you add all sorts of variable costs, how much are these costs down quarter over quarter, if you can help us there. Maybe also finally then related to the sort of near-term earnings components, can add something on the volume side, what you think about volumes. Are they sort of stable or should we expect them to be maybe seasonal down or something in the fourth quarter? Thanks.

Yes, Johannes. So let me start with the pricing. I mentioned 2.5% that we expect the prices to decrease heading into quarter four. That is primarily related to region Europe. and within the second craft business. In terms of the input costs, sequentially, we saw the improvement in Europe of 200 million. That is in quarter three compared to the second quarter. For US, we saw a minor improvement of 25. Heading into quarter four, we expect improvement in total of approximately 125 split with 100 for Europe. and 25 for North America. And then also Johannes, just to remind what I mentioned earlier on the fixed costs. So the fixed costs in the third quarter were approximately 300 million lower than what we expect for quarter four combined for the group.

And the shipments, how should we think about that sequentially?

Yeah, so on the volumes, we usually see some seasonality primarily on the European volumes. That has historically been related to the working capital management by our customers. Obviously, this year, we also have the general destocking movement. Based on where we stand now, we would expect volumes with roughly 20,000 tons lower for quarter four compared to the third quarter.

Okay, got you. Then I think I saw in the presentation pack or maybe the Q3 results that you take some upfront costs, right, impacting the fourth quarter, but you have a quick benefit of that. Can you just maybe elaborate a bit on that?

Yeah, I can take that. So it's related to the restructuring cost. As we mentioned, it's a 350 position that we have announced today and that we will take as an item impacting comparability now in Q4. So back on that, you can say that it's certainly coming in 2024 at some point. And the reason why I cannot give you much more at this stage is that now we will be working with the unions in both regions to nail down what that plan component looks like. But we will obviously come back to this in the beginning of 2024 and also how it fits with overall delivery of our efficiency enhancement program. Okay. Okay. Very clear. Thank you.

Please stand by for your next question. The next question comes from Cole Haythorn at Jefferies. Cole, your line is open. Please go ahead.

Thanks for taking the follow-up. I just wanted to ask on kind of the pricing dynamics kind of medium term. We've seen wood costs structurally higher in the Nordics. Are there any categories that you feel you still need to go back to the negotiation table to raise prices to kind of offset the higher wood costs into the future. And I'm thinking more liquid packaging board. You've got long-term contracts. Those contracts and volumes work very well when, you know, inflation is kind of more manageable, but the wood costs, if they don't come down, you still need to kind of go back and renegotiate those over time. Thank you.

Yeah, no, so let me just say that I think for most of the categories, we have a pretty, let's call it... a relatively short term and quite dynamic pricing picture, which is constantly revised. So I think that the mechanism is pretty well established and agile. You're right, liquid packaging is an exception. I can confirm, profitability on liquid packaging for the time being is not something we're happy with. Input cost still remains on extremely high level. So it's definitely part of what are on the table and being discussed on the pricing situation of liquid packaging. I can confirm that.

Thank you.

Thank you. There are no further questions, so I'll hand back to you for closing remarks.

Okay, thank you. So thereby we conclude this conference call. Thank you for joining us this morning and welcome back the 25th of January when we report our year end results.

This concludes today's conference call. Thank you for participating. Now disconnect. Speakers, please stand by.