Billerud AB (publ)

STO:BILL

Earnings Call Analysis

Company Projects Uncertain, Costs and CapEx Controlled

The company's plans for the U.S. mill conversion and Norway's BCTMP mill project are unclear, with firm updates expected by early 2024. CapEx for 2023 is pegged at SEK 2.3 billion; subsequent years remain unspecified due to pending decisions on other projects. Expected U.S. election and Olympic-driven graphic paper demand uplifts face the overhang of customer destocking. European prices have dipped by 2.5%, with input costs improving and fixed costs set to increase by SEK 300 million in Q4. The company anticipates a volume decrease of approximately 20,000 tonnes in Q4 and is discussing pricing related to high input costs for liquid packaging board.

Progress Amidst Challenges in Q3 2023

Billerud presented its Q3 2023 results, showcasing resilience and strategic adaptation during a period of considerable market challenges. Year-over-year comparisons reveal declines across key performance indicators, a reflection of a high baseline and markedly different market conditions from the previous year. Yet, looking at the quarter sequentially, the company achieved substantial progress, specifically in profitability with an 11% EBITDA margin. Despite upticks in sales volume for Europe and North America relative to Q2, these gains were negated by price declines and a negative sales mix.

Efficiency and Cash Flow Strength

One of Billerud's focal points has been its efficiency enhancement program, which is not only on target but has been a strong contributor to the quarter's success. Notably, the company also boasted excellent cash flow this quarter, driven by a disciplined approach to working capital management. Additionally, the successful completion of the Frövi recovery boiler project, delivered within budget and on schedule, underscored the company's operational capabilities.

Facing Headwinds with Inflation and Market Conditions

The company confronts several headwinds, including input cost inflation which increased by approximately SEK 300 million compared to the previous year, and a challenging inventory revaluation impact. Despite these factors, Billerud noted that market conditions had remained relatively unchanged from Q2, with continued soft demand and price pressure, but with stable expectations heading into Q4.

European Market Dynamics and Outlook

In Europe, net sales decreased by 8% year-over-year, largely due to reduced prices across most product categories and an unfavorable category mix. An exception was the liquid packaging board, which demonstrated a robust performance with 18% growth compared to the previous year, benefitting from both pricing and volume increases. Sequentially, the region experienced a 7% volume growth, but pricing across categories remained under pressure. The company anticipates price deterioration for sack craft segments to persist into Q4, while other pricing is expected to stabilize. Substantial input cost reductions amounted to approximately SEK 200 million for the quarter, primarily from lower costs in chemicals and logistics.

Input Cost Trends and Hedging Dynamics

While most input costs have trended downward, fiber costs peaked with a notable SEK 40 million increase from Q2. Nevertheless, the company achieved notable cost relief, largely in response to reduced chemical expenses and thoughtful hedging strategies. Heading into Q4, Billerud anticipates an additional SEK 100 million in cost relief, predominantly due to lower fiber costs. The company has hedged 67% of its electricity exposure in Sweden, preparing for potential price volatility.

North American Performance and Expectations

Sales in North America have fallen by 24% from the previous year, with volume contraction being a significant factor due to weakened demand for paper grades, which has necessitated an increased focus on pulp sales. Despite the drop in EBITDA by 11%, the company improved its margin by 2 percentage points thanks to cost adjustments. Looking ahead, Billerud expects the process of customer destocking to conclude in Q4 and is continuously adapting its production strategy in line with demand fluctuations to maintain operational and financial efficiency.

Earnings Call Transcript 2023-Q3

[Operator]

Hello, and welcome to the Billerud Q3 Report 2023. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lena Schattauer, Head of IR. Please go ahead.

[Lena Schattauer, executive]

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

[Ivar Vatne, executive]

Thank you, Lena, and good morning, everyone, and thanks for joining. I'm excited to present the Q3 Billerud results together here with Andrei 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. In overall, we are pleased with the results we delivered this quarter for Q3, and we've seen progress on several fronts where we 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 the Frövi recovery boiler project on time, on spec and on budget. So, let's continue with the financial bridges. So next slide, please. So starting with the top line. We're down in net sales for both regions versus a year ago, mostly in North America, with heavily reduced volumes where the customer destocking 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 in containerboard, pulp, and sack and kraft. Some help we 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 year ago. We already mentioned the pricing and volume and mix, but we are on top facing additional input cost inflation, roughly SEK 300 million versus a year ago. The SEK 175 million impact of our 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 SEK 419 million, where the 2 biggest items are: impact from the inventory revaluation, just half of SEK 300 million negative. And you should read that as SEK 230 million positive in Q3 '22 and minus SEK 65 million now in Q3 '23. The other point to mention here is the insurance proceeds of SEK 75 million for Yevrah 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 SEK 500 million positive. This is, first and foremost, related to the very significant upgrade of the stock in our Quinnessec 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 market conditions have remained relatively unchanged versus what we experienced in Q2, meaning that most categories are still operating what we at least will 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 with section being Liquid Packaging Board, which has a characteristic of a more normalized level. Printing and Publishing remained weak, still slow demand with customer destocking being the main theme, pricing holding up incredibly well though despite these conditions. Consumer & luxury, overall, we condition the demand is soft and adds to negative pricing pressure, and lastly, on this one, industrial, probably the channel where the most under pressure right now in the whole market would probably say the same, Sackpaper, certain tough conditions, [ Indiscernible ] bag with exposure to construction and cement. Going into Q4, we are not expecting very different marketing conditions versus what we've seen in Q3. So it's relatively stable across. And with that, I hand it over to Andrei.

[Andrei Kres, executive]

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 a 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 EBITDA 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 4, 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 SEK 210 million, and we will reverse those back in quarter 4. Input costs decreased sequentially with approximately SEK 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 costs peaked during the quarter and were up SEK 40 million compared to second quarter with pulpwood up SEK 80 million, and that was offset by lower purchase pulp prices. We implemented a 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 SEK 130 million. Energy was down SEK 20 million and logistics SEK 90 million as we saw the new overseas contract yielding the savings. Heading into the fourth quarter, we do expect to see about SEK 100 million in additional cost relief, and that is more or less entirely coming from lower cost of fiber. We expect the other cost items to have only a 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 U.S. 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 2 percentage points as we have been able to adjust our cost base to the lower demand. And also last year was impacted by the Quinnesec outage in quarter 3. If we look sequentially, we are 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 4. 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 2. The pricing for graphic paper was stable in the quarter, while pricing for Specialty and Pulp were down. Both Graphic and Specialty pricing remained high and were above the corresponding level last year. Going into quarter 4, 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 costs decreased with SEK 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 4, we anticipate relatively flat development with only minor movements, and that should, in total, bring us a cost relief of approximately SEK 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 is still below our maximum target of 2.5 and now a milestone in the quarter was the development of our U.S. 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 U.S. pension plan at SEK 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 SEK 400 million and also favorable discount rate development.In terms of capital allocation, CapEx for this year will be SEK 3 billion, which is SEK 100 million higher compared to our guidance and quarter 2 call. And this increase is related to the movement of the Frovi recovery boiler project. For next year, we target CapEx of SEK 2.3 billion with final payment for the Frovi recovery boiler of SEK 100 million and base CapEx of SEK 2.2 billion combined for both regions. And with that, I would like to hand it back to Ivar.

[Ivar Vatne, executive]

So thank you, Andrei. 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 a bit of light hard. We reached the decision and of this magnitude, but it's our belief that it's needed for being reviewed 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 a reduction to yield annualized savings of SEK 300 million with the majority of the run rate savings heading towards the end of 2024. Restructuring costs of SEK 100 million will be recorded for the fourth quarter, and it will also be reported as items affecting comparability. Next slide, please. So as it was mentioned in the beginning of the call, we are progressing well on efficiency program and accelerated the delivery now in Q3, where we added SEK 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. It also means that we are on track to deliver an ambition of SEK 600 million savings for 2023. Our effort and focus is now starting to shift towards making good plans for 24. And this will continue for the coming months. We set the bar quite high going into next year, delivering additional SEK 700 million versus 2023. And if it will be successful, it means that we are well ahead of our ingoing ambition to deliver the SEK 1.5 billion set by end of '25. 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 yes, it was mentioned also in the beginning, but some words about the Frövi 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 and which has not been a small achievement, I can tell you. When you consider that most of these projects 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 Frovi's one of the core boiler 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 expectations in many ways. I mean, in fact, we generated almost 50% of the net acquisition value in operating cash flow over the last 1.5 years, which is truly remarkable. We are more confident now in strengthening our belief of the strategic fit, the US transformation program has for Billerud and it remains the company's most important priority. However, the economic conditions have changed dramatically over the past 2 years, and we will need to adapt to this fact. It means it 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, deliver strong project financials and generate shareholder value. We will therefore not decide on the complete use transformation investment program by the end of this year, as previously announced. We do not have a new timing estimate at this stage, but we will revert back then 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 today, 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 have divested some additional assets in the quarter. Our Managed Packaging business has been sold to Mimir 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 2 items are minus SEK 29 million and was recorded as an item affecting comparability for Q3. On top, we have an ongoing process to divest some nonstrategic forestland, 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 that you would expect to see weak demand in the wake of tough macroeconomic environment, negative mix for most categories and some price pressure, first and foremost within sack and kraft paper. They will partly offset this impact by lower input costs. And we are taking further steps to drive efficiency in securing Billerud's long-term competitiveness to reducing up to 350 positions. And with that, I hand it back to operator for Q&A.

[Operator]

Thank you [Operator Instructions]. Your first question comes from Robin Santavirta at Carnegie. Robin Your line is open, please go ahead.

[Robin Santavirta, analyst]

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 Q-on-Q improvement. And as I understand, it's come from volume growth, the cost-cutting and rationalization program, fixed cost reduction, seasonality and then the lower input costs. But did you mention what was the sales price impact Q-on-Q in Q3? And what should we expect for Q4 when it comes to sales price impact on earnings in Europe?

[Ivar Vatne, executive]

Yes, 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 4, as I mentioned, we primarily see that the prices will decrease within sack and kraft business. So, we expect the prices to decrease with 2.5%.

[Robin Santavirta, analyst]

And if I could ask, what are you seeing in terms of order intake at the moment in Europe, you say the destocking, the supply chain and downstream is starting to come to an end, are you seeing better order intake at the moment your European business overall compared to what you saw, say, 3 months ago when you reported Q2.

[Ivar Vatne, executive]

Yes. No, 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 containerboard, the rest that will be the liner and the floating I guess it's our view that we are likely on the way out of the bottom of it 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. It's not all blue sky though because you can say although volumes there, there is still pretty hefty price pressure. And also, we are, in some sense, hit by negative mix impact. But I can confirm that we are a little bit more optimistic on containerboard than probably some of other categories and more optimistic, that the recovery has started and going into kind of Q4 and 2024. If I just go quickly through some other ones, I mean, containerboard, not as strong, and that's still a tough sentiment, slow market, soft demand. I think that's also by the nature of that category where we have at least a 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 is a more intense dialogue on certain projects, and there's a bit more interest to get corn. 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 containerboard starting to come up. So certainly for the rest of the year now containerboard 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 segments. But sack in general, you can say that it's tough, in particular, the brown sack. I mean order books have been quite okay and early Q4, but it's also just a lot of capacity out there, and it's definitely price pressure. So this day chasing volume, which is less attractive and negative mix impacted. So we are quite, let's call it, cautious, and yes, not at all optimistic on Brown sack for the time being. White sack, not much different, 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 feels like it's dead. Typically, if you go into construction and industry, it's weak. Food is better in this case, but still not good. So yes, maybe a little bit better than the brown sack, but still tough for the rest of the year. And I think on kraft paper, yes, 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 we at the moment feel we can say for containerboards.

[Robin Santavirta, analyst]

And if I just chip in with one additional question is related to your North American business operating rate for you guys and for other producers are quite low or very low at the moment, still sales price as the most segments are quite high. What is the outlook you said you 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?

[Ivar Vatne, executive]

Yes. I mean it's a great question. And I have to say, we've also been extremely impressed on how we managed a very difficult time in U.S. I mean it's almost counterintuitive to make money, but we have a capacity utilization of close to 60%, and I think we also keep in mind that there's very few suppliers of graphic paper in domestic in U.S. 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 call with 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 U.S. 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 little bit further out for '24, but yes, still kind of flat and careful for rest of this year a bit better on volume going into 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.

[Operator]

The next question comes from Linus Larsson at SEB.

[Linus Larsson, analyst]

First question on North America, and you report to talk about focusing on the core. And I also see on Slide 17 that you talked about focusing on packaging materials. So my question is really how does a very active graphic paper strategy 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?

[Ivar Vatne, executive]

So let me start, at least trying to answer your question. I comment this time around and also when you talk a lot about the focusing on the core is certainly also about taking some of what we call noncore assets out. And we mentioned the case of Managed Packaging and also eliminating our position on the paper company, and we don't know the time. 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 also 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. And that still is the play. So I can still say that we are working on that assumption still that will be where we are heading towards. And I just mentioned, we are taking our time now to find a solution that we feel both fit the strategic play that I just mentioned focusing on packaging material and coming to a good shareholder value proposition. So we do expect, let's say, if we've had 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 U.S.

[Linus Larsson, analyst]

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

[Ivar Vatne, executive]

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 fundamental 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 2 years. And 2 years, we might have had our prophesies 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.

[Linus Larsson, analyst]

Great. 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 pulp wood costs. And relating to that, I'm also thinking what your view on your production footprint and your pipe wood consumption? Are you evaluating restructuring in light of the pulpwood shortage that we are seeing in the region.

[Ivar Vatne, executive]

That's a good big question. But 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 have 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 pulp and fiber. And 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, a 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 plan some more on that, Linus. But I can say that we will certainly come back also in '24 to talk a little bit about that, hey, our core strategy is intact, but the environment has changed, and these are some of the points that we will not drive in Europe region going forward.

[Operator]

Your next question comes from Cole Hathorn at Jefferies.

[Cole Hathorn, analyst]

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. Andrei, you talked about fixed cost savings of about SEK 210 million in the quarter that impacted the EBITDA that's going to reverse into the fourth quarter. And I'm just wondering, is there any other items that we should be thinking of that's kind of closer to a one-off that impacted or boosted the 3Q numbers because much better than expectations? And then I've got another one after that.

[Ivar Vatne, executive]

Or maybe you just ask the other one call, so I just can write them up and then we take them one by one.

[Cole Hathorn, analyst]

Perfect. The other one is on the boxboard 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 have the CapEx numbers, it's the right call. But in the interim, will you also be investigating other opportunities for that mill, for example, the option of just closing one graphic paper machine in time when it happens or converting into some specialty grades to just kind of understand what are the other options as well as the boxboard conversion in the future?

[Ivar Vatne, executive]

Okay. Good. Do you want to start the first Andrei?

[Andrei Kres, executive]

Sure. So in terms of the fixed cost, I mentioned the figure of SEK 210 million, and that was obviously the impact for Europe region, where the impact was the highest. In total, we expect approximately SEK 300 million to come back in quarter 4 compared to quarter 3 in terms of fixed costs, and that is split in 210 million for Europe, 60 for North America and remainder for corporate functions or within the other.

[Ivar Vatne, executive]

Good. I jump on to the next point call, which is fair again on the boxboard. Now I can only say that we are looking clearly at different alternatives. Certainly, that means how we can optimize both Escanaba and Quinnesec Mill in the best way possible. You know that originally 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 against scope. I think that also the big part of the machine today can be reused, what are absolute the necessities to be done in terms of the infrastructure makeup in the mail versus what are the some of the points that actually we believe that we can debate. And yes, it means we had a clear hypothesis in the beginning and we concluded that will not work. So that's why it's 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 the 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 give some further light on this when we come into '24, at least on where we stand on the project. Maybe I just also want to add one important point because I think some of you were aware of this. We have been receiving a SEK 200 million grant from the Michigan State, which is obviously a wonderful contribution. This very important project, not only for the Escanaba community, but the whole of Michigan State. And that timing is certainly further down in 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 time frame 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 and going into '24.

[Cole Hathorn, analyst]

And then maybe just 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? Were you kind of reevaluating kind of the longer-term growth profile and rather than kind of the short-term destock, I'm talking particularly around maybe sack or some of those kraft papers, especially ALPLA papers where you're kind of changing your views rather than the liquid packaging board, which I imagine continues to be stable.

[Ivar Vatne, executive]

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 part 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 kind of 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. If you look at e-commerce, that is the driving force in most of the categories you 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 PWR, 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.

[Operator]

Your next question comes from Oskar Lindstrom at Danske Bank.

[Oskar Lindström, analyst]

Yes. The rather quick questions from 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 '24 and possibly even 25? And then finally, you mentioned the U.S. election as having potentially an impact -- a positive impact on graphic paper demand in North America in the 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 that?

[Ivar Vatne, executive]

Yes. Oskar. 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 honest, right now, we don't even know ourselves on the -- 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 our Q4 report kind of end of Jan. That 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.

[Oskar Lindström, analyst]

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?

[Andrei Kres, executive]

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

[Ivar Vatne, executive]

Yes. And maybe if I just quickly jump in here. So I think you talked about the used transformation. And as Andrei 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 our Norway project in Fold, the BCTMP mill. I mean, it's progressing as well. We are not expecting to make a decision on that one before the summer or quite close for this summer. So you can say that, yes, if you 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, as far because that also depends on how we land the final stage and the recommendation, et cetera. The third question you had on this U.S. election on graphic paper demand. It's also a little bit difficult to say. I mean, as per se, I haven't been in the industry for that long. But what we've seen and when we talk to the guys who have plenty of experience and have seen this 2 different is that 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 in the U.S. So again, everything else equal, it turns out -- well, it points towards having a pretty good volume uplift in graphic in U.S. But I would still say that end of this year, maybe going into next year, the customer destocking is the main theme that we are more hopeful then than we go from kind of Q2 and onwards.

[Operator]

[Operator Instructions] Your next question comes from Johannes Grunselius at DNB.

[Johannes Grunselius, analyst]

Maybe I missed this questions 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 sort of variable costs, how much are these costs down quarter-over-quarter, if you can help us there? And maybe also finally then related to the sort of near-term earnings components. Can youadd 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?

[Andrei Kres, executive]

Yes, Johannes. So let me start with the pricing. I mentioned 2.5% that we expect the prices to decrease heading into quarter 4. That is primarily related to Region Europe and within the sack and kraft business. In terms of the input costs, sequentially, we saw the improvement in Europe of SEK 200 million. That is in quarter 3 compared to the second quarter. For U.S., we saw a minor improvement of 25%. Heading into quarter 4, we expect improvement in total of approximately 125 million splits with 100 for Europe and 25 million for North America. And then also, Johan as just to remind what I mentioned earlier. -- on the fixed costs. So the fixed cost in the third quarter were approximately SEK 300 million lower than what we expect for quarter 4 combined for the group.

[Johannes Grunselius, analyst]

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

[Andrei Kres, executive]

Yes. 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. Now obviously, this year, we also have the general destocking movement. Based on where we stand now, we would expect volumes with roughly 20,000 tonnes lower for quarter 4 compared to the third quarter... Okay.

[Johannes Grunselius, analyst]

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

[Ivar Vatne, executive]

Yes, 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 it will take as an item impacting comparability now in Q4. back on that, you can say that'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 planned component looks like. But we will obviously come back to this in the beginning of '24 and also how it fits with overall delivery of our efficiency enhancement program.

[Operator]

Your next question comes from Cole Hathorn at Jefferies.

[Cole Hathorn, analyst]

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 cost into the future. And I'm thinking more liquid packaging board. You've got long-term contracts. These contracts and volumes work very well. When inflation is kind of more manageable, but the wood costs, if they don't come down, do you still need to kind of go back and renegotiate those parts?

[Ivar Vatne, executive]

Yes. No. So let me just say that I think for most of the categories, we have a pretty, let's call it, relatively short term and quite dynamic pricing picture, which is constantly revised. So, I think that 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 an extremely high level. So it's definitely part of what are on the table and being discussed on -- yes, pricing situation liquid packaging. I can confirm that.

[Operator]

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

[Lena Schattauer, executive]

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

[Operator]

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