BillerudKorsnäs AB (publ)

Good day and thank you for standing by. Welcome to the Billerud Q2 Report 2024 webcast and conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Lena Shatawa, Head of Investor Relations. Please go ahead.

Good morning, and thank you for joining this conference. The presentation of Billerud's second quarter results will be conducted by our President and CEO, Eva Daphne, and our CFO, André Kripp. After the presentation, it will be possible for participants on the call to ask questions. And with that, I hand over to you, Eli.

Thank you, Lena. And good morning, everyone. And thanks for joining in on this beautiful summer day here in Stockholm. So we're excited to walk you through some of the highlights of our Q2, which has been a quarter with some very clear positives. So let's get into the next slide, please. We're back to net sales growth, and we see this growth coming broad-based across most categories in both regions, which is encouraging to see after fighting market headwind for some time. Another clear highlight is how we've been able to successfully improve our underlying profit, both versus a year ago and quarter over quarter. Key has been a clear and deliberate focus on driving the right mix and proactive price management. And this has enabled us to fully offset input cost inflation. I'm also proud of the continued progress we've done to deliver on our efficiency enhancement program. And now speaking about profitability, I want to highlight a region North America here. Delivering 18% EBITDA in a quarter where we also include a maintenance stop. That is something I'm very pleased about. It's been a busy maintenance quarter for us with four mills doing their annual shuts. But I'm happy to report that all stops have gone well and largely in line with both time and cost estimates. Lastly, I want to highlight our ability to convert the reported profit into cash. Working capital discipline has been a big item for us over the past years. And we see another proof of it this quarter with a cash conversion close to 80%. And that's another solid number. Next slide, please, and onto some comments about the market sentiment. In general, we have experienced improved sentiment for most of our categorings during the quarter. And our view is that we are operating in a normal to good conditions on average for bidders. Customers are ordering again, and the destocking we faced during most of 2023 feels like a long time ago. However, we are far from the overheated market we experienced during 2022. There is an uncertainty of how strong the underlying demand really is, and that situation differs by category. But overall, we remain cautiously optimistic that condition will continue to improve going into second half. For food and drink, our biggest channel by far. We see normal conditions for liquid packaging board and due to strong conditions for container board and a second craft business. Consumption is decent. and stock levels throughout the value chain do not seem to be unusually high. For a printing and publishing channel, we're still coming from a relatively soft situation in the beginning of the year. Inventory have come down to more normalized levels, and the upcoming election should fuel more positivity going forward. However, we experienced headwind with heavy postage inflation past years, which dampens the market activity. But net-net, though, we expect this channel to slightly improve going into Q3. Consumer luxury has also improved. Demand seems to be OK, but it is not as strong as what we see in container board. If we see stable condition going into second half, it's a rough expectation that we will see an increased demand going into 2025. And lastly, for our industrial channel, the SAC business has improved. We had normal or average plus conditions Pretty good poll in the brown SAC business. Nothing remarkable. A lot of effort into driving profitable mix. For white SAC, Northern Europe is quite weak. Well, it was a good poll for the Southern Europe geography. But overall, we believe our SAC business will meet stable condition in 2023. So with that, I hand it over to André.

Thank you, Ivar, and good morning, everyone. Let's start by looking into net sales, which increased by 8% compared to last year. And that was largely driven by volume and mix improvement, which was the case for both regions. Our total pricing impact was still negative with only pulp and liquid packaging board segments, which showed year over year price increases. And as we previously pointed out, We have announced several price increases for our European segments in both quarter one and quarter two this year, and we see sizable sequential improvement, which offset the cost inflation in the quarter. And we will continue with our pricing efforts also heading into quarter three and expect pricing to further improve into the third quarter. Next slide, please. Moving over to profitability development, And also here, higher volume and improved mix were the main drivers behind profitability uplift. Raw materials and logistics costs were more or less flat. And although the pulpwood costs in the Nordics were significantly higher compared to last year, other broad-based cost declines more than offset the pulpwood cost impact. And we had yet another strong contribution from our efficiency enhancement program with a total impact of 190 million. And inventory revaluation had also significant positive year-over-year impact, just south of 210 million. And that impact was also positive sequentially versus quarter one with 150 million. Now moving over to the regions. and starting by region Europe. So the region continued to have a solid order books and also positive market momentum in most of the segments. Price increases were implemented for second craft segments and also container board. And these price increases fully offset sequentially higher input costs. Profitability for the region improved significantly versus last year. to a margin of 9% in EBTA terms. And in quarter two, as Ivar mentioned, we executed several maintenance shutdowns. For region Europe, this had a total EBTA impact of 400 million. So clearly underlying profitability for the region is improving also compared to the previous quarter. Sales volumes for the region were up 6% versus last year. but down 5% sequentially versus quarter one. And we expect the volume to be more or less flat heading into quarter three. All in all, this was a positive development for the region with clear pricing improvement, which offset the pulpwood cost increase. Now looking into the cost development for the region. Next slide, please. As we expected and also talked about, the pulpwood prices continued to increase in the quarter and also reached all-time high levels. The total impact from pulpwood cost increases versus quarter one was 120 million, and also costs for purchased pulp increased and added 60 million versus quarter one. Costs for chemicals were up 10 million and logistics 40. Seasonally lower energy costs had a positive impact of 100 million. So all in all, we had a cost headwind of 130 million versus first quarter this year, which again was fully offset by price increases performed during the quarter. Heading now into quarter three, we expect additional cost headwind in the region of 180 million, where 140 is from pulp wood and remaining 40 is from purchased pulp. Other cost items, we expect to remain stable. And also for quarter three, we expect further price increases to fully offset the cost headwinds. Now heading to region North America. Next slide, please. Our North American region saw clearly more positive market sentiment in particular for specialty paper during quarter two. Volumes increased by 14% versus a year ago and by 4% sequentially. The region continued to operate below 70% in operating rates, but delivered excellent profitability with EBITDA margin of 18%. Profitability for the region was impacted by 120 million in maintenance shutdown costs at our Kvinasek mill So underlying profitability for the region is remaining very strong, despite far from full capacity utilization. And heading into quarter three, we expect further positive pricing impact from pulp prices and also slightly improved volumes. Next slide, please. Also a couple of words on cost situation for North America, which again is very different from Europe. As we expected, the input costs remained stable in the quarter. And although we did have seasonally slightly higher pulpwood costs, that impact was offset by minor declines in other input costs. So all in all, very flat development. And we expect costs to marginally decrease into quarter three, but again, very minor movements. And we're talking about tailwind in the region of 10 million. Next slide, please. Looking into cash flow development, and as Ivar mentioned, we had a solid cash conversion in the quarter. The cash flow in absolute terms improved significantly versus a year ago and also sequentially. Operating cash flow conversion was at 77% for the quarter. We maintained our working capital position despite sequentially higher sales. Our leverage was up versus a year ago. at 1.6 times EVTA, but we improved our leverage position compared to quarter one from 1.9 times, despite dividend payout of 500 million in this quarter. Our capital expenditures for the first half year amounted to 1.3 billion, and we will have additional 1 billion in base capex for reminder of the year. So all in all, our capex guidance of 2.3 billion for this year. unchanged. And now heading him back to you, Ivar.

Thank you, André. We keep the focus on our efficiency enhancement program and we're adding another 190 million to the program for the quarter. And I'm both happy and proud to see the progress we made and we're ahead of ambition since we launched this company-wide priority aid in Mönchengladbach. And as we tend to do, In this gray shaded box towards the end of the slide, you can see some real examples of initiatives that have contributed to the program during the quarter and the width of activities we go after throughout the company. And for 2024 in total, we are well on track to deliver a target of 700 million. Next slide, please. So over to North America. And I'm sure most of you are aware of the new direction of moving our product mix towards packaging material. This is something we announced and talked about end of May. We have a well-represented and multifunctional team in place to work through the plan details. Meaning what grades do we expect to start with and how the sequential plan will look like. And not least, some clear indication of what investment level this will require. This work is progressing well, and we do expect to share a more comprehensive plan in a capital market day. We haven't locked in a date for the CMD yet. We expect this to take place in the back half of Q4. And we will obviously share the details as soon as we have them ready. Next slide, please. The company priorities for 2024 remain more or less unchanged from what I've shared earlier in the year. Number one is the continued work of our strategic investment project. We have a change of scope in the US, as I just talked about, and we are in the waiting mode for our BCTMP project with Deakin, where we do expect to get some use on the environmental permit during second half. For Europe, we are adapting to a high cost situation on fiber and securing cost competitive wood supply, and it will remain high in our priority list for the foreseeable future. And lastly, fuel the momentum of efficiency enhancement program going into second half, and finish 2024 off in a good manner. So next slide, please. So to round it up, a couple of comments with output for Q3. Market sentiment has turned more positive during the first half of 24, and we do expect this to slightly improve going into Q3. Input cost inflation is something we will continue to fight, first and foremost in our region, Europe, Hence, we will continue our strong focus on driving pricing and mix improvements. And as André mentioned, we do expect in Q3 on total for the company to be able to offset increased input costs through pricing and mix. So with that, I hand it back to operator for Q&A.

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 one and one again. We will now take your first question. One moment, please. And your first question today comes from the line of Christian Kopfer from Handelsbanken. Please go ahead.

All right. Thanks, operator. Good morning, everyone. Just a few follow-ups from my side on how you see the guidance into Q3. Just to see if I... if I interpreted in the right way here for volumes, so more or less flat volume for Europe into Q3 and the US a little bit higher. And when it comes to costs, 180 million increased costs in Europe and 10 million lower costs in the US. And then on prices, you say that you expect prices to offset So we should expect prices in Europe and North America to be up 2-3% or how do you see it in Q3 versus Q2?

Yes, good morning, Christian. So on the cost side, you were correct in 180 million in Europe and a tailwind of approximately 10 in North America. On the pricing, we do expect to increase prices for our European paper and board segments with two to 3%. And if we look at the North America, we expect more or less total flat pricing development with some increases within pulp, but we will also have some worsened mix due to more pulp production.

All right, so the mix, So, André, you included the mix, so the European price outlook, that is all including mix effects.

That's correct. Yeah, so we have two to three percent that we expect for the paper and board segments, and also increase in purpose.

So that's including, you know, potential mix changes as well. Yes. Okay. Excellent, André. Thank you very much.

Thank you. We will now take the next question. And the question comes from the line of Efrem Ravi from Citigroup. Please go ahead.

Thank you. You made an 18% EBITDA margin in the U.S. even with less than 70% operating rate. So sort of three follow-ups on that point. One, can you give us a sense of what kind of utilization rates are you budgeting there for the second half? Secondly, what's the kind of operating leverage you can expect with, say, a 10 percentage point increase in operating rates in the U.S.? ? And third, you are also calling out very strong net sales growth fueled by volume in North America, yet low operating rates. Does this mean that there was a lot of sales from inventory in this quarter in North America? And the reason for these questions is that we don't have a huge amount of track record with the former Verso assets. We're just trying to figure out how 70% operating rates can lead to such high margins.

Yeah, hey, good morning. It's fair questions. No, listen, I think... We probably expect to get slightly above the 70% threshold, going into at least Q3. As André mentioned, we do expect to get some more volume, first and foremost on graphic. We are pretty much fully booked on speciality, so there's nothing really much there. It is no doubt that we do not expect to reach 80-90% utilization at least for this second half of the year. And all indication indicates that we are not going to see that either going into 2025. And this is very much the core of our call it strategy of what we want to do in the US where these two well graphic segments we're operating in and coded free sheet and coded ground vote they are on a pretty heavy annual decline year by year just because of consumption is coming down and people need to start adding more volume into other paper board grades so that is something we will come back to so if I try to summarize it We are pretty careful to assume that we will fill the machines right now on the portfolio. We will start adding more volume and share those details in CMD. And hopefully then you will see that we have some good plans to get to higher utilization down the line. But that will be a gradual program starting in 2025 and probably move towards 2030. I think the last point, if I got you right, in terms of our net sales per tonne, No, I do not at all go and say we have a lot of old inventory we got rid of. That's not the case at all. That was a pretty clean situation that we had. It's just literally been mixed between the grades. We had a bit lower pulp sale for this quarter, also because of Quinnisec was having their maintenance shot. And that's the biggest pulp producer we have in our assets over there. and also speciality went well.

Thank you.

Thank you. Your next question comes from the line of Lars Schellberg from Sievel. Please go ahead.

Thank you. Just a couple of questions on my side. When you're looking at the different performance between the different segments and ascribed container board being strong, and consumer board okay-ish, what do you ascribe that difference to? Are you still seeing some destocking on your customer side, on the consumer board side, while, of course, container board, that already seems to be done? Also, if we could allude to if you expect any further inventory revaluation to benefit the third quarter and second half numbers, just to get some clarity on that. And the final point, I guess I understand, of course, you're going to share more details in the North American situation, but it's equally interesting to see the profitability, which seems to have structurally somewhat changed relative to what it used to be in coded papers. So is it really worthwhile taking a risk to adding supply into a somewhat crowded packaging market in the US when a coded paper business is doing as well as it is? Why not just milk the assets?

Hey, good morning, Lars. I'll start it off and I think Andre will help on the second point. No, but listen, I think just a couple of comments. I'll just make some general and try to also tie back to your question. But listen, for container board for us, I mean, market is still strong, especially on fluting. And, you know, there's certainly more pull off on the volume side. But, you know, several pricing waves in the industry, which is coming through. And the whole market is moving. It's quite a lot helped by also the pressure that is seen on recycled container board. And there's no secret that pretty much everyone, in particular in Europe, is feeling this input cost inflation, which is first and foremost going back to the fiber cost. And that price and corridor between virgin container and recycled is certainly also something that... get a little bit of tailwind. You see customer inventories are in good levels. Underlying consumption feels good. Us in particular, fruit and vegetable is a channel that we are heavily exposed to, and that seems to be in good shape. And I think on carton board, listen, it is a bit different situation. It's quite a lot of volume out there and supply, and in particular of overseas. It's no doubt that part of the consumption, if you look at some of the categories we're exposed to with electronics and luxury and some of the more finer categories, that consumption is under pressure. I think it's fair to say that interest level, which has been taking a toll in most markets, has influenced this. So this is also a little bit to my comment earlier on that now that we start to see signs that interest level will start to ease up. We have at least some cautious optimism to believe that consumption will start also in cardboard, but that's more later in the year and maybe more into 2025, if anything else. André, you want to take the second point?

Good morning, Lars. Yes. So on the inventory revaluation, I mean, normalized level would be somewhere between zero and 50 million that we would expect come in the quarterly impact. Now heading into quarter three, we do expect that to be a positive effect due to increase in the input costs. And this is what we would look for at this point.

And listen, last point on your third. It's not an unreasonable comment. I can say the following. I love graphic paper. And we will be in that category for quite some time. And that's certainly something that we will still have as a big part of our identity in North America way into the 30s. Having said that, there's just no doubt that there is a pretty heavy, and I call it secular decline in those categories. Yes, the US still is a market with 400 million plus, but we see the same trend as Europe has maybe been a bit earlier on. And there will be a challenge to fill those mills at a good level. in the long term, you know, with that exposure. So we will need to supplement that we are not going to do anything stupid. We have a very good connection dialogue with our customers on Graphic. We want to be the preferred supplier. We have wonderfully located in Midwest US and, you know, established fantastic relations over many decades and those we will keep. But then again, gradually starting to put more paperboard where we are good in Europe. This is where we have the know-how. We have the can call it, widespread expertise to be drawn. So we think actually we will have a very exciting US plan now with this more evolution approach than maybe the more revolution that we initially had planned.

Got you. Thank you.

Thank you. Your next question comes from the line of Oscar Lindstrom from Danske Bank. Please go ahead.

Yes, good morning and congratulations on a very good result. Two questions from my side, one sort of focusing on Q2 and especially North America where you saw that very good underlying earnings improvement. Could you perhaps explain a little bit more about how this was possible with continued relatively weak volumes of capacity utilization? Was it only price? I can't quite bridge that, but maybe you could provide a little bit more details there. That's my first question. Can we just get the second as well? Yeah, sure. So my second question is more long-term and looking at your financial target for at least 17% EBITDA margin. I mean, you're now achieving 9% margin in a quarter that you describe as quite where market conditions were normal in most of your segments. So What are the building blocks really to reach that 17%, which is quite a jump from where you are now? Is it enough to just sort of go for price increases or are there also more structural changes needed? That's my second question.

Yeah, good. So André will start the first and I'll tag on to the second.

Good morning, Oskar. So on the profitability in North America, I think if you look sequentially, versus quarter one, we did have some volume uptake, which is obviously one of the explanations to the improved results. We had also quite significant mix effect with lower pulp sales as we carried out the maintenance shutdown in Gwynnessyck, and that's where we sell less pulp during the maintenance shutdown. We had also quite significant help from lower fixed costs overall in North America with a very conscious focus on the fixed cost level. And those, I would say, were the main drivers for the profitability uplift here.

Yeah. And listen, if I go into the second one, it's a good point, Oskar. And let me say the following, though, that you're absolutely right that this quarter has been certainly better and it's a bit more normalized. I just want to remind all of you, but I'm sure you have that on your radar, 9% EBITDA is a very heavy maintenance cost. If you strip that out and then you are at 14%, Now, it is also true that over a year, some quarters will need to carry that. So you cannot completely exclude, but it gives indication that this is a nice step up from what we've seen for the last four or five quarters. But I think on this financial target, this is certainly something we have on our mind. It will be a very natural topic when we have the CMD towards the end of the year. We are a different company now. than we were at the time when we met last time, not least with the U.S. now on board. And we will take this into account. I mean, just in terms of our capital allocation details going forward, that will be a big topic when we meet. And certainly, you know, things have changed in Europe now. But I can say that given how we look at the fiber situation, where we don't see this as a short-term spike in going up, this is now a bit more the new normal we need to operate within. We have to do more ourselves. So we need to do better. We need to be slimmer. We need to be lean and mean. And we have always opportunity to just challenge ourselves if our cost base is right. And we need to do further adjustments of the costume. But you cannot save yourself the glory in this situation. So price and mix management is just instrumental here. And that means we will have to take further tough positions and value over volume. That is a very big mantra for me now in this situation. And I think the US is a very good example of this, running below 17%, but having a phenomenal value mentality. You see the numbers for yourself. And it's not unreasonable that this is something that we're going to drive hard also in Europe going forward.

Right. Thank you. I'll look forward to that year-end capital market day.

Thank you. We'll now take the next question. And the next question comes from the line of Linus Larsson from SEB. Please go ahead.

Thank you, Anna. Good day to everyone. Could we just drill down a bit more on price and mix which surprised me quite a bit in the quarter and I would guess it surprised you as well so you saw an acceleration here of I mean price mix was up more than 6% in both North America and Europe sequentially a strong acceleration actually from the first quarter and now you're talking about the an abating pace in Q3 from Q2. So is this largely mix driven, this surprise, or what is really behind those big figures here?

Good morning, Linus. So in terms of development, sequentially here into quarter two. I think if you look at our net sales performance, and as you mentioned, 6%, you could split those in roughly equal parts of 2% pricing, 2% mix, and also 2% FX. We did have some significant impact from the FX quarter on quarter. We also did make quite significant moves in terms of improving our mix primarily within Europe. And we should also bear in mind that quarter one, we delivered all time high volumes within liquid packaging board. Now we're probably on the margin delivered more of the paper grades, which improves the total net sales. And now heading into quarter three, we do expect the mix effect to be much lower, but what we guide for is to a large extent and then pricing effect.

Great, that's very helpful. So what we're seeing Q3 on Q2 is largely price, and we shouldn't expect mix and FX to have an impact, really.

Not at this point in time. I mean, as we see it, it's to a large extent going to be price.

And that figure, you talked about it earlier on the call. What's that? You say you will offset costs, but will you more than offset costs or are you willing to go into more detail on that?

No, as we see it right now, I talked about the cost headwind of approximately 180 million for Europe and 10 tailwind in North America. If we look at the pricing into quarter three, we would expect additional 200 million. So slightly more than offsetting the input costs. Great.

And that's mainly in Europe, but also in North America? That's mainly in Europe, yes. Perfect. That's very helpful. Thanks a lot. And then what you mentioned, the one-off in Carlsborg, this fire and you mentioned 50 million corona impact. How should we think about that in the third quarter? Is that coming back fully or partly or what's the bridge there?

No, so the 50 million we had in the earnings impact in quarter two was essentially half of it was volume and half of it was increased costs to repair the damages. Heading into quarter three, we don't expect any material impact from that incident.

Perfect. Good stuff. And then just maybe finally, and maybe it's early days, but on the uncoasted liner trials that you've made in North America, what's your time plan on that? And is that something that to make it commercial production, would it require some, some, uh, minor capex or, you know, what, what would it take to, to, uh, to, to make this into a significant part of your business?

Yeah, no, I can take that one. Um, no, but I can, I can just confirm that, um, these uncoded liner proposition that we, um, We piloted in North America. It has exceeded our expectations. This is a pure hardwood uncoated liner, which, to be honest, we don't have that much experience here in Europe. As you know, it's a little bit different, split soft and hardwood here. But the properties came back very strong. We had it out with the customer for testing. Typically, what you will experience in a stage like this is that some things work really well. while you get some homework to fix certain other things. And that's where we are. So at this stage, we haven't sold anything from commercial, but let's just say that very good interest with some of our customers on this. And we do expect relatively shortly to be able to just start, yes, from zero, but to get some commercial volume. And that's not unreasonable that it happens already second half of this year, although that's still not confirmed. I think when you say that what is going to be meaningful position, it's a good question. I think probably I'd like to save that to the notorious CMD we mentioned. That's where we will be probably able to do a bit of more granularity and show you our glide path. But in this particular case, that will not require, as it seems right now, any significant additional capex on the uncoated liner.

And which machine are we talking about? Which machine would be suitable for this product?

Yeah, I mean, this test we did now was actually in Quinn. So that's in Quinnisex, so the Q41. No doubt that when we look at also our asset space in Escanaba, there's a good hope that certainly the E4 machine will be able to do something similar. But as I said, this we'll talk more about at the end of the year.

Perfect. Very interesting. Thank you.

Thank you. Your next question comes from the line of Robin Santavirta from Carnegie. Please go ahead.

Thank you very much and good morning all. I have a question related to the North American graphic paper market. You're doing quite well there, as you alluded to earlier in the call. And when I look at the ASP you are generating, it seems to be clearly higher compared to historical average levels years back. So what should we expect? You say that the graphic paper market is in a decline in North America, obviously, and the load is not very high, but still the sales prices are quite good. What should we expect down the road this year and perhaps next year in terms of sales prices of graphic papers in North America?

Yeah, hey, good morning, Robin. No, but listen, you're absolutely right that the graphic situation in North America has changed over the last couple of years. I think you are aware that a number of mill closures or machine closures have taken place. It's now down pretty much to two locally produced suppliers in North America. We are one of them, as you know. And we remain very committed and we want to keep our very strong added value proposition and also be short lead time with a good regional location of our mills. Pricing are higher, absolutely. We expect the pricing to be flat for the foreseeable future.

All right, thanks. And then another one. On a different topic, so pulp, wood, raw material prices, we have seen quite significant increases in Scandinavia and I guess all over the world during this year and last year as well. What is the view now? Should we expect the stabilization from, I understand, levels or prices are still going up in Q3, but from there on, what is the best guess from your view, related to the price level Q4 start of next year. Is it the stabilization, a pullback, or increases? And could you just comment on your view? I mean, there has been a fear that Scandinavian producers of paper board essentially are in the squeeze and structurally in a very tricky position, yet you can show that Q2 and what you comment on Q3 that actually sales price increases more than offset those quite big increases in power output. So two questions. What is the outlook for power output prices in your view? What is the outlook for the sort of sales margin in foreseeable future?

I can take the first part, Robin, and good morning. So I think if you look at the pulpwood prices, I mean, our cost had went into quarter three that I just mentioned previously. That's largely due to the price list changes that have been announced during, you know, second quarter, but also here in the beginning of the third quarter. And there is a lot of uncertainty in the market. So what we know at this point is, you know, Q3 will going to be up for us. But it's continued very tight situation on the market. And it's difficult to say for a longer term, but definitely for Q3, we will see a cost increase.

Maybe I can tag along to the second part and good morning, Robin. I think you're raising a very important point. And, you know, our view and more analysis of this is if you look at the Nordic Bolton paper, which is such a dominant cluster in the whole European packaging and pop-and-paper context. That region historically has been successful for numerous reasons, but particularly three things on my head stand out. We've had good access to low and stable energy pricing. You had ample supply and reasonably priced fibre for the foreseeable future. And you also had a soft and hardwood mix that fitted really well. to those packaging grades in particular that require some special in terms of qualifications and properties. And there is no doubt that, you know, maybe two of them, certainly one, the fiber side is under pressure. That means that I think, you know, you are under pressure to start to lose some competitiveness then on a global scale. But I think very importantly here is if you think about that, that situation will probably hit differently depending on what category you're exposed to. So from my side, it's extremely important that you remain in structurally attractive categories. We need to build in a very good customer and value add mentality of why that proposition is still adding a good benefit for the customers. But it is a new era. I've said that for some time and you could smell it quite soon after the whole war in Ukraine started. been under the lid a bit, you know, with a very soft end of 22 and 23. But this reality now is really booming. But, you know, we will need to do different things at the same time, as I mentioned. You know, price and mixed proactive management is instrumental. And clearly, you know, we and I think everyone in the industry will still need to challenge themselves of can we do more better or more for less. And that means, you know, further efficiency on the fixed cost and really trying to think differently. It will just be a necessity in this landscape we're currently facing.

Thank you very much for that, and well done in the quarter.

Thank you. Once again, as a reminder, if you'd like to ask a question, please press star 1 and 1 on your telephone. Your next question comes from the line of Martin Malbye from ABG, please go ahead.

Good morning. Two questions for me. First, a nitty-gritty question. So the quarter-of-a-quarter inventory effect for Q3, where do you see that? And the second question, what is now a good mix? Should you indicate the margin per segment, say on carton board, container board, sack craft, liquid packaging board? Which business would you prefer?

Good morning, Martin. Let me take the inventory evaluation first. So in the quarter, in the second quarter, we had a positive inventory evaluation of approximately 80 million. Heading into quarter three, I mean, we expect a normalized level. As I said, it's between somewhere between zero and 50 million. It's going to be positive. So quarter over quarter from the revaluation, we will have some negative impact and it will be in the region of 30 to 80 million, maybe.

Yeah, and good morning, Martin. I can take the second one. Listen, I don't want to comment specifically on profitability per category. I mean, as you know, one thing is what net sales per ton we see between the categories. Another thing is what we see on gross margin between the categories. But I think in general, you can say that this quarter on Q2 is a pretty well representation of a call it average or a good level of what mix you can expect to see. You know, we did some nice moves towards the end of the year of 23 and now in Q4. We certainly would not expect to see, you know, further improvement at that magnitude, as Andrea alluded to. But, you know, you would always now try in the landscape we're in where inflation, you know, is such a, you know, challenge in particular in Europe. you would just go after everything you can. And it can move the dial, so it's not necessarily the same answer I'll give in a year. But right now, I think the Q2 is pretty represented and a good balance of the mix that we see at least short term.

What I was hoping for is that you give some kind of indication of liquid packaging board, which used to be the star. Is that average or below or above? the rest of the categories now?

No, I don't want to comment on specific categories. As you know, liquid packages is a very important part of our portfolio. It will continue to be so. And, you know, this is as far as I would go.

Thank you.

Thank you. We will now take the next question. And the next question comes from the line of Cole Harthorn from Jefferies. Please go ahead.

Morning. Thanks for taking my question. The first one's just a clarification. You're talking about the wood costs going up into the third quarter, which is expected. But just to clarify, is that... During the third quarter, did you get incremental list price increases, or is this just the lag effect from 2Q coming through? I'm just trying to understand if we're getting something sequential, and we should expect further headwinds into the fourth quarter, into 2025, is the first question. The second is, I think your comments around, you know, the higher wood costs and the actions that you take there, which is volumes, efficiency, and effectively pricing, and all your comments on value over volume and pricing up, how do you think about it on a big portfolio level? Do you have in mind to say, right, we just need to price up ahead of costs 5%, 6%, and then we're back at an absolute EBITDA level that we feel comfortable? And how reasonable is that kind of 5% to 6% above costs to you? kind of get towards the 4.5 or 5 billion EBITDA in Europe. Just to understand your thoughts there, big picture. Thank you.

Good morning, Carl. So let me take the wood cost part. So in terms of the pulp wood cost coming up into quarter three, that's to a large extent a lag effect, which is based on the price increases announced during first half of the quarter two. But we also had some price increases late in the second quarter and also immediately here in the beginning of the third quarter. But those will flow through to a large extent during quarter three.

Hey, and good morning. Maybe I'll take the second. I'll start at this. And please correct if you feel you're not getting fully answered. But no, I think maybe not as mechanical as that. I mean, there is no doubt that, you know, given the capital intensive industry we're in, We would need to see EBITDA margins up in the area of what we currently have as a long-term target. If not, the whole equation cracks down. And then we look at the return of Captain Floyd, which is a massive KPI for us. It's just not there. And surely, in all kind of indications, we use our best knowledge short-term to long-term of what the input cost situation we're in. uh you know we just we will need to adjust our mindset from where we used to be in the past and you know competition is is different also per category uh you know our market position or market strength is also different per category so that you know clearly put a little bit different uh kind of flavor of what tools you you have to but no doubt that i think you know harder now than maybe in the past we are willing to leave volume on the table for pricing or value that we see is just not representative of the situation we're in. That was probably not the extreme case some years ago, but now we're going much harder after this. And at the same time, you know, we just need to challenge ourselves. And I know I'm repeating myself of what do you really think our fixed cost, you know, costume and base should be. And, you know, we need to do more for less. We just have to do even better and find new ways of simplifying, automating, and trying to just find synergies in-house. I mean, all of those just are on the menu right now.

And then maybe just thinking about your capital market today in the fourth quarter, is that where we should expect you to lay out your expectations of CapEx over the both North America and how you think about the business. But maybe at that stage, will you be in a position where you could talk about what you're going to do with your balance sheet? Because you did take on an equity raise to do that bigger conversion, and you're not doing the conversion into North America. Your net debt deeper dollar is below one times. So I'm just wondering, how do you think about your balance sheet from here?

Yeah, no, I can confirm. Listen, capital allocation will be a big part of that day. And you would expect to see, you know, plans going forward for both of the regions. And as you know, the starting point is very different. Our portfolio is different. But, you know, we're working towards, you know, in many ways the same goal. But all of this would be on the agenda when we meet in Q4.

Thank you. That was our final question for today. I will now hand the call back to Lena for final remarks.

Yes, well, then we conclude this conference. And as you have heard today, we plan to host the Capital Market Day in the fourth quarter. But before that event, we will report our Q3 results on the 24th of October. So welcome back then and goodbye from all of us.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.