Billerud AB (publ)

STO:BILL

Earnings Call Analysis

Solid Revenue Growth Amid Challenges

Billerud reported a solid quarter with a 6% increase in net sales, which translates to a 9% growth on an organic and currency-neutral basis. The growth is attributed to strong demand from North America and better pricing strategies in Europe. Notably, the third quarter showcased the highest profitability in Europe for over two years, indicating effective efforts in managing costs despite persistent raw material price pressures.

Profitability Boost from Pricing Strategy

The company's EBITDA improved by 33% compared to the previous year. This increase was largely driven by higher sales volumes in the North American region and effective pricing strategies in Europe. Overall, pricing adjustments contributed SEK 340 million to revenue, which offset increasing input costs, especially from pulpwood, which has reached all-time high prices.

Regional Performance and Outlook

In Europe, Billerud achieved a commendable EBITDA margin of 16%. The upward profit trends are expected to face hurdles in the fourth quarter due to a noted decline in demand across some categories. Consequently, sales volumes in Europe are projected to decline by 10,000 to 20,000 tonnes in Q4 compared to Q3. In contrast, North America remains stable, with a strong order book and an EBITDA margin holding at 18%.

Challenges with Cost Increases

Despite the positive results, costs continue to be a pressing issue. The company anticipates an additional cost headwind of SEK 100 million in Q4 due to rising pulpwood and electricity costs. In the long run, this trend in input costs may lead to further pricing pressures, especially if demand conditions do not improve.

Strategic Positioning for 2025 and Beyond

Management remains optimistic about 2025, particularly in North America, as they expect share gains due to weakening competitors. However, they acknowledge that the cartonboard segment may face prolonged challenges, potentially extending through 2025. The company has prioritized maintaining value over volume amid changing market conditions.

Guidance and Capital Expenditures

For the fiscal year, Billerud maintained its Capital Expenditure guidance at SEK 2.3 billion. Additionally, the efficiency enhancement program is on track to exceed its SEK 700 million target for 2024, reflecting the company's focus on operational efficiency in a fluctuating market.

Future Catalysts and Risks

Despite confidence in the underlying macro trends supporting growth in packaging grades, Billerud acknowledges the existence of several risks, including ongoing cost inflation and softer underlying demand in European markets. The upcoming Capital Markets Day is anticipated to provide more insights into strategic plans moving forward.

Earnings Call Transcript 2024-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the Billerud Third Quarter Report 2024 Conference Call. [Operator Instructions] 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 Schattauer. Please go ahead.

[Lena Schattauer, executive]

Good morning, and welcome to this webcasted conference call. We have today published Billerud's results for the third quarter of 2024. Our President and CEO, Ivar Vatne; and our CFO, Andrei Kres, will present the results and answer questions.

So without further delay, I would like to hand over to the speakers. And first up is Ivar. Please go ahead.

[Ivar Vatne, executive]

Thank you, Lena, and good morning, everyone, and thanks for joining in this beautiful Thursday morning. To be excited to present another solid quarter for Billerud. It's been a quarter with few surprises. And in general, we are pleased with the results we see on several fronts. So let's get into it then.

Next slide, please. And in essence, we've seen strong net sales growth and our profit recovery trend throughout 2024 is continuing. We record plus 6% net sales growth, plus 9% organic and currency neutral. And our top line growth is coming from both regions and across most of our categories.

We see also for this quarter significantly improved profitability, both versus year ago and versus previous quarter. And what is satisfactory to see is that the recovery is coming from both the regions. Europe recorded its best profitability in over 2 years. And I will continue my praise for our Region North America, another excellent quarter with strong results across the board, and coming in with 18% EBITDA, making it a long trend of superb results.

Key for our strong progress to improve bottom line has been our relentless focus on fighting cost inflation through proactive pricing and mix management. And we have succeeded again this quarter on exactly that priority.

And last but not least, we continue to deliver on our profitability enhancement program and add another SEK 220 million this quarter, making us well positioned towards a full year target for 2024.

So next slide, please, and let's get into some of the categories and channels with market conditions. And overall, and very much as we had expected, we experienced slightly better sentiment during the quarter, so during Q3. But we have not been operating at strong levels in any of our categories.

Having said that, there is no doubt that we do see a worsening situation going into Q4. And the underlying consumption is below where we expect the long-term trend to be. And this is clearly a trend shift versus what we saw during first half of '24. But keep in mind, situation is different per channel and per region. This is a very important point to keep in mind.

So add a little bit more detail. So for food and drink, our biggest channel by far, we experienced normal conditions during the quarter. And going forward, we do expect stable conditions for liquid packaging board, while somewhat softening conditions for containerboard.

For our printing and publishing channel, it's been a solid quarter. Presidential campaign and closure of more capacity in the U.S. has improved our position as the natural choice and the clear market leader for domestically sourced graphic paper. We have started Q4 well for graphic paper.

In Consumer & Luxury, that was a disappointment during Q3, and we ended worse than what we had expected. And we experienced a clear negative shift of the sentiment during the quarter. And in general, you can say that cartonboard is in a tough spot with overcapacity and in general quite weak underlying demand. And we see this in several of our big European markets with low GDP growth and consumers holding back on spending. We are not too optimistic about cartonboard in the short term and expect it to go further down before we hopefully see a recovery later in 2025.

And lastly, for our Industrial channel, Q3 was pretty okay. We've seen decent demand and upward pricing for both brown and white sack. But also here, we see a worsening situation and a negative trend shift happening towards the end of Q3. So we expect tougher conditions towards the end of the year, in particular, on the volume side.

So with that, I hand it over to Andrei.

[Andrei Kres, executive]

Thank you, Ivar, and good morning, everyone. As Ivar alluded to, we've had a solid organic and currency-neutral growth of 9%, and it has been a story of 2 regions. Our North American region has stood for most of the volume growth, while Region Europe was mainly contributing to growth with higher pricing and also improved mix.

Now both regions did have a positive pricing impact versus last year, totaling some SEK 340 million. Sequentially versus the second quarter, we've again had a positive pricing development across most of the categories, which more than offset the input cost increase we had in the quarter.

Next slide, please. Our EBITDA improved 33% versus last year. Our higher volumes in North America and the positive pricing development in Europe were the main drivers for the uplift. Our raw materials and logistics costs were up versus year ago, with pulpwood prices in the Nordics being the main factor here behind the cost increase.

Our efficiency enhancement program continued to have a strong progress in the quarter, contributing SEK 220 million to the uplift.

The other bucket of negative SEK 200 million comprises mainly of higher fixed costs this year, and that was due to normalized provision level for the short-term incentive program, but also somewhat higher maintenance costs outside of the annual maintenance shutdowns in the quarter.

Now moving on to the regions. And next slide, please. To start with Region Europe, which delivered a solid profit improvement and reached 16% EBITDA margin. The profit uplift was driven by a continued focus on pricing and also the very strong contribution from the efficiency enhancement program.

We continued with our broad-based pricing efforts in the third quarter and had a positive pricing impact versus quarter 2 across all segments, except liquid packaging board. Our sack and kraft paper segments had by far the strongest pricing momentum in this quarter, and our total pricing outweighed the cost increases.

Sales volumes for the region were down 3% versus last year and 2% sequentially, and we did experience softer demand within some categories by the end of the quarter. And we expect that weakening to continue into quarter 4.

So to summarize Region Europe, a clear profit uplift in the region on the back of further pricing efforts, but our outlook into quarter 4 is certainly much more cautious.

And a couple of points on cost development for the region. Next slide, please. As we expected, the pulpwood costs continued to increase in the third quarter, reaching new all-time high levels. The pulpwood cost increase had a negative impact of approximately SEK 150 million compared to the second quarter.

On the other hand, we did have some positive impact from seasonally lower electricity prices, but also lower logistics costs, which offset much of the pulpwood cost increase. All-in-all, we had a cost headwind of SEK 70 million in the quarter, which was somewhat lower than we anticipated.

Moving now into quarter 4, we expect additional cost headwind in the region of SEK 100 million, where SEK 70 million is from higher pulpwood costs and SEK 30 million from higher electricity costs as we now enter colder period. And as we expect continued cost inflation into quarter 4, we will maintain our focus on pricing and mix improvement in the region, and we will prioritize value above volume.

Now over to Region North America. Next slide, please. The North American region delivered once again very solid profitability with an EBITDA margin of 18%. Volumes increased with 14% versus previous year and 7% sequentially, with volume uplift across all categories. EBITDA margin was in line with quarter 2 performance, and our operating rates in North America stayed below 70%.

Heading into quarter 4, we see relatively strong order books now in the beginning of the quarter, while we do expect some slower sales volumes at the year-end, which is in line with the pattern we've seen for the last couple of years. At this point, we would expect total volumes for quarter 4 to be somewhat lower than we had in quarter 3.

Pricing for the Paper segments within the region are expected to remain stable also into quarter 4, while we will see further decline in pulp prices.

And finally, just a note on the maintenance cost in the region. In the third quarter, we carried out our planned maintenance shutdown at Escanaba mill, and that had a total negative impact of approximately SEK 90 million and the remaining SEK 20 million will impact quarter 4.

Next slide, please. Couple of words on the cost development in North America, which has been very much in line with what we expected. We did have a cost tailwind of approximately SEK 40 million compared to the second quarter, and that tailwind came from seasonally lower fiber costs and also lower logistics costs driven by our destination mix in the quarter.

Heading into the fourth quarter, we expect only minor movements in our input costs. Our current estimate would be a cost tailwind in the region of SEK 10 million to SEK 20 million.

Next slide, please. Now our cash flow performance in the third quarter was heavily impacted by working capital buildup. We increased our inventory level in the Europe region and also had a negative cash flow impact from timing of our operating liabilities.

The cash conversion in the quarter ended below 30%, and our year-to-date figure is in line with the level last year. We have a clear target to improve our OCF conversion towards 80% for the full year, which we've also achieved for the past couple of years.

As we've highlighted in our report, we finalized another successful transfer of our U.S. pension obligation, which will have a positive result impact of approximately USD 25 million that we will record in the fourth quarter as item affecting comparability.

And after this transaction, our pension obligation is now at approximately USD 500 million, a clear decrease from the USD 1.2 billion we had at the time of acquisition of Verso. And we maintain our funding ratio of above 100%.

Finally, our CapEx guidance for this year is unchanged at SEK 2.3 billion. And we will, of course, share more on our future CapEx projections at our upcoming Capital Markets Day.

With that, I would like to hand it back to you, Ivar.

[Ivar Vatne, executive]

Thank you, Andrei. Our efficiency program continues with full force, and we delivered another solid contribution this quarter. This means we are very well on track to deliver our ambition for 2024. In fact, as it looks right now, we should land comfortably above the SEK 700 million target we set for ourselves in the beginning of the year.

As usual, some examples of tangible initiatives are found in the middle of your screen. We continue to make good progress on building up stronger positions amongst our private forest owners and secured a stronger value creation from downgraded material and waste. We've also had good help from the FTE reduction program we launched pretty much this period last year.

Next slide, please. So we're starting to get towards the end of the presentation with some last words on the Q4 outlook. We are going into a quarter where we do see a negative shift of the market sentiment. That is at least true for several of our categories in Region Europe.

North America is different and is expected to operate in pretty stable conditions. And as Andrei just went through, we do see increased input costs, first and foremost, related to fiber cost inflation in Nordics.

Next slide, please. And lastly, I wanted to take the chance to remind everyone of our planned Capital Market Day, Monday, the 2nd of December. And needless to say, I hope as many of you as possible will have the opportunity to attend in-person. I'm personally very excited to finally talk about our new plans for both regions and how we plan to maneuver going forward.

So with that, I hand it back to operator for Q&A.

[Operator]

[Operator Instructions] And the first question comes from the line of Johannes Grunselius from DNB.

[Johannes Grunselius, analyst]

It's Johannes Grunselius here. I have 2 questions. My first one is, what you talked about here, Ivar and the team, about the weakness in cartonboard. I was wondering if you kind of have the flexibility on moving out from that category and go into the other categories being relatively strong. Do you have that flexibility? It would be interesting to hear your thoughts on that.

[Ivar Vatne, executive]

And now the answer is absolutely. As you might know, our cartonboard production is centered in Gruvon, KM7. We also have a very good carton machine in Gruvon, KM5. And yes, there is absolutely flexibility to also maneuver towards liquid packaging and also, to a large extent, other grades of containerboard.

I alluded to it earlier, but containerboard as well is not necessarily super strong right now. But you are pushing on something very important that absolutely we will be looking for all pockets of how we can find volume in other segments and containerboard will be a place where we will have a natural starting point. But we also need to be very clear. We want that value creation to be strong for that volume. And as also Andrei mentioned, value over volume. But that is our plan going into Q4.

[Johannes Grunselius, analyst]

Also on the U.S. market, I mean, you are indicating pretty much stable volumes, I suppose, Q4 over Q3. But if you look more into '25, I mean, there is capacity being taken out, perhaps in media. Do you expect the sort of levels in at least the first half of next year to be higher than Q3, Q4 in the U.S.?

[Ivar Vatne, executive]

Yes, it's a good point. I can take that. It's a small reminder that we tend to have also a bit of seasonality in the U.S. So I think from Q4, although the sentiment is pretty stable, typically, we would look at 10,000 to 20,000 tonne lower volume Q4 versus Q3. There is nothing drama in that. It tends to be the rhythm we see every year. And again, it's also linked to some of the customer purchasing patterns, et cetera.

But to your more maybe relevant question or important point about '25, I think we go into '25 with pretty good confidence on all fronts. I think on graphic paper and specialty. Specialty is in good shape, and that is a category that's supported by tailwind, overall, and we're doing well. I think it's fair to say that we do expect at least the same, maybe little bit more, on specialty from our side. And I think it's somehow similar, but in a different context on graphic.

You do know this is a category that is fighting secular decline. But we are a very strong position, and we are the clear market leader in an attractive region. There has been closures already during Q3, and there's another big one coming up towards the end of Q4. So it's pretty fair to assume also that we will have a bit of a further uplift on a graphic volume going into 2025. Difficult to say how much, but we are certainly confident that we will have another uptick, everything else equal of what we know right now.

[Operator]

And the next question comes from the line of Linus Larsson from SEB.

[Linus Larsson, analyst]

Maybe starting off with price, if you could help us as you often do, and maybe per region giving some more detail on the sequential price effects that you expect in the fourth quarter, please?

[Andrei Kres, executive]

Yes, I can take this one. So in terms of pricing, if you look at Region Europe, we do expect overall flat pricing heading into quarter 4. If we look at Region North America, as I mentioned, the paper grades are expected to have a stable pricing in quarter 4. However, we will see some decreases in the pulp prices. Our estimate at this point would be a negative impact of somewhere around SEK 50 million into quarter 4 compared to the third quarter.

[Linus Larsson, analyst]

Sorry, did you say 5-0?

[Andrei Kres, executive]

5-0. Yes.

[Linus Larsson, analyst]

Got it. And then -- that's very helpful, that's clear. And then maybe on the delayed CTM project in Norway. What's the latest on that? And how do you expect to proceed? And in relation to that, if you could give some early indication of your thinking on CapEx for 2025, please?

[Ivar Vatne, executive]

Yes. Linus, I can take that one. To be very honest, I don't have much more than what's already been written in my CEO comments in the report. But it was a surprise when our permit application was rejected. We will appeal, and we're looking to complete that appeal, I think, towards the end of next week. Let's see. That's all I can say.

I think we felt we had good arguments on -- yes, well documented. So again, we will go in with renewed optimism on that. How long it will take and what outcome is, obviously, very difficult to estimate at this point.

I think it's important to keep in mind that, that was a chip in a whole Europe, call it, sourcing and fiber strengthening position. And we also have all the parts on top of this. So let's see if it doesn't successful and what we do then. But for the time being, that will be an appeal. We first look forward to see how it's being processed.

Now on your second point, I would probably dodge that question and ask for a bit more patience. All of this, pretty granular even, I would argue, we will go through in our Capital Market Day. So sorry for not being able to answer. But in 6 weeks, I think you will get the ample level of details.

[Linus Larsson, analyst]

No, that's very understandable. But is it fair to assume that relating to any CTMP project or anything that could replace that, we should not expect anything for 2025, at least?

[Ivar Vatne, executive]

I would just hold that question. It's probably not going to be a big one. Anyway, if it comes out as a positive message it takes time to get organized, as you know. But we will cover, I think, the necessary details in 6 weeks.

[Linus Larsson, analyst]

And maybe just a final question on seasonality and costs. You did comment on rising energy costs in the fourth quarter. But what about fixed costs? What's the seasonality that we should expect Q4 and Q3?

[Andrei Kres, executive]

Yes, Linus. So in terms of seasonality, we have, as you know, the vacation accrual release that we have in quarter 3 that we will not have in the fourth quarter. So this is going to be a negative impact of roughly SEK 130 million quarter-over-quarter.

Now in quarter 4, we also tend to have some more activity than we have in quarter 3 due to vacation period, so that would add probably additional SEK 100 million.

And then finally, as I mentioned on our working capital position, we will have a high priority to adjust our working capital in the fourth quarter, which means that we will make choices to our production schedule, and that will result in some fixed cost under absorption to restore the inventory levels. At this point, we would estimate that impact to be in the region of SEK 50 million to SEK 100 million negative in quarter 4 versus the third quarter.

[Operator]

And the next question comes from the line of Cole Hathorn from Jefferies.

[Cole Hathorn, analyst]

I'd just like a follow-up on North America and graphic paper. You talked about kind of better graphic paper volumes into 2025. Is that just from share gains from Sappi that's converting into boxboard? I mean, how do you think about and explain that kind of volume improvement?

And then focusing on Europe next, which end market -- you've given some good color on sack and kraft paper, but I'm just wondering if there's anything that you can call out there because we've seen recycled containerboard come down a little bit, but wood costs are up. And I'm just wondering if you see virgin containerboard, sack and kraft effectively being able to hold pricing just because of the different cost dynamics in virgin versus recycled grades that I know you don't play in, but some of your competitors in the box market do?

[Ivar Vatne, executive]

No, I think the first question, I can be pretty quick on. Yes, it is related to share gain. As you know, this is a category that comes down pretty much every year, depending a bit on the different grades. But we feel very confident about our value proposition of being well placed in the Midwest and excellent cost curves of our production units there. And as more local or U.S. produced capacity is taken down, we go into 2025, pretty confident in our ability to have a meaningful proposition to customers and also establish new customer relations.

I think to your second point, it's a very interesting question. And I think if you just go a little bit back in history and say that pulp -- or pulp pricing being good indicator of also what happens in some other packaging materials, you can certainly ask yourself if this will be slightly different this time. I think certainly, in Nordic and Northern Europe, everyone is fighting the same challenge. It's not, I think, a company-specific item. But all virgin fiber producers are having cost situation, which is tough and input cost is certainly not coming down, although pulp pricing on a global scale is coming down.

So I think it will be a different game this time where you would expect a lot of players to maintain focus on value over volume, potentially be able to not jump over or on to all volume opportunity arises. But it's a fine balance. You certainly also need to have a certain utilization to keep the mills in a pretty good shape.

The situation now is slightly different, as I'm sure you can expect on the categories. I mean, liquid packaging board in general is holding better. That demand is more stable on the global league, you can say, or level. Although, China is maybe the concern also there that it's a bit lower consumption.

But -- and then containerboard and cartonboard, just challenge right now, and I don't expect that to be long term or permanent. Is that there has come quite a lot of new capacity in and installed capacity being ramped up now in '24 and going into '25. If you couple that with some of our key markets struggling with the underlying consumption, and consumer spending is not really up to par, then I think everything points towards that it will be more price pressure and fight over some volume positions.

We still remain confident. Long-term trend of packaging grades is in a good place, and they are supported by macro trends that should be a strong force going forward with positive category growth for most of the categories we are exposed to. But, yes, no doubt, before we might see some meaningful interest level declines in Europe and starting to see some optimism on the consumer spending, it looks to be some tougher quarters ahead.

[Cole Hathorn, analyst]

And then if I could just have a follow-up on your specialty kraft business. I mean, you're one of the few players that operate in that segment. I'm just wondering if there's any differing demand trends or pricing trends there?

[Ivar Vatne, executive]

No, I think it's -- that category has done a good comeback in '24 after '23 was tough, as I'm sure you know, with inventory levels now being more normalized. It is a category that is in pretty good growth. Also in U.S., e-commerce, in particular, is a good driver for this. We are well placed, I said, with good production location in the Midwest. And we continue to fuel momentum on that category. It's an important category for us. It's a prioritized category, and we expect, everything else equal, '25 to be better than '24.

[Operator]

And the next question comes from the line of Lars Kjellberg from Stifel.

[Lars Kjellberg, analyst]

I have 2 questions left. One being, of course, the wood cost pressures we are seeing and the dominance of Nordic production into liquid paperboard. How do you see that working with your main customers in terms of trying to find any sort of compensation through pricing, considering that demand in that category is quite good?

Also thinking about is, again, kraft and specialties, I mean, you called that out as being very strong in the U.S. I think you -- I can't recall the exact percentage number, but it's a significant increase in volume. What are you seeing in that business in Europe? And are there any opportunities to tap into that market in a greater way also on the European side?

[Ivar Vatne, executive]

No, listen, the first one, there is just a fact that the input cost level has come up a lot in Nordic over the last couple of years. The dynamic and the contract length in liquid packaging is a bit different, as you know. It tend to be longer contracts. I mean, we have discussions with all of our customers going into 2025. And there is a clear expectation that pricing is coming up in '25 versus what we've seen in '24 as that cost situation has put a lot of pressure on the region.

But having said that, we also need to continuously do better ourselves and have that mentality of take cost out and look at our own internal efficiency. And that's also very much in line with our efficiency enhancement program that we have ongoing.

I think to the second point you have, which talked about U.S. I think in Europe, it's a bit of a difference between the grades. We can maybe quickly go through them. I think on sack -- and I can take sack and kraft paper combined. And brown sack, as you know, the main destination that we have on our side is towards construction.

That is a tough, say -- call it, channel or an industry globally these days. Asia is certainly not in the best shape. So we definitely see that Europe is weak. It's tough demand still in Asia. And we go into '25 with probably an expectation that this is coming down for some quarters.

White sack is somewhat better, and that's also related to the destination categories and channels being slightly different. But we also sense that there is quite a different shift now that we see going into Q4 and putting pressure on, I guess, all of the players. But it's not necessarily in the same negative league as we've seen on brown sack.

On our MG side, yes, there is price pressure, and there is definitely also some volume issues that we see. But we have pretty good flexibility on our machines. We can have a bit of flexibility in the different application that helps us to drive different mix and find some sweet spots that we are very good at and have a good point of difference. But we certainly expect some pricing pressure when we come into 2025.

On our brown MF, that's still a pretty good. It's a smaller segment for us, but that is in a better shape. E-com, particularly carrier bags is a pretty good match these days, and we have more confident view on that item.

In FibreForm, smaller, little broader, but it's a pretty unique proposition for us. It is pretty okay, and that's also where we should have a bit more room to grow. So I mean, all-in-all, that segment has been good for us in '24. We start to certainly see that towards the end of the year it's cooling down and we're holding pricing well towards the end of the year. Tougher to say into '25, but we'd certainly go into an expectation of '25 with volume coming down and some increased pricing pressure from Q1.

[Lars Kjellberg, analyst]

Just one clarification. When you talked about the sequential changes to fixed cost that if I do the math, it sounds like you're expecting in the ballpark SEK 300 million higher fixed cost in Q4 versus Q3. Did I get that right?

[Andrei Kres, executive]

Yes, that's correct. That's on the fixed cost per se. Now, Lars, you should also remember that we do have somewhat lighter maintenance shutdown schedule in quarter 4. So we get approximately SEK 240 million in positive impact quarter-over-quarter from lighter maintenance schedule.

[Operator]

And the next question comes from the line of Sean Ungerer from Chronux Research.

[Sean Ungerer, analyst]

Just in terms of your comments around European pricing being flat heading into Q4, is it fair to assume that does definitely apply to sack and kraft paper segment? And then I guess, sort of heading into 2025, how are you guys thinking about sort of balancing higher input costs while demand seems to be moderating somewhat? That's it.

[Ivar Vatne, executive]

Do you want to take the first part, Andrei, and maybe I'll take the second part of that question?

[Andrei Kres, executive]

I can take. In terms of pricing, I mean, we do expect only minor movements within the segments. On the total level for the region, we do expect overall pricing to be flat. Now on the back of somewhat weaker demand that we expect to have in quarter 4, we might see some negative impact from the mix. But in terms of pricing, again, we will prioritize value over volume and expect to hold pricing quite firm into the fourth quarter.

[Ivar Vatne, executive]

Yes. And maybe I'll just jump on the last point going into '25. And I think you mentioned it, but to be very clear that it's a very different -- well, difference between U.S. and Europe. And I think we went through how we are much more optimistic about the North American going into '25. But I think, listen, for Europe, it's a good question, and it's something that we will maneuver and probably fight on a weekly and monthly basis.

Input cost is not coming down, and that is just a fact. And to the contrary, we see still that we will be fighting a full quarter impact of announced fiber cost increases that has come in Q3 and energy is coming up in Q4 now versus Q3 just due to normal seasonality. And yes, on a global basis, so the demand is soft.

But I don't think we should panic either. This is not something that is a long-term trend. We are very confident for most of the categories that there is, based on the macro trends -- sorry, the bigger macro trends, that this is going to be a growth story going forward and our substitution effect towards fossil packaging is in the center of that.

But yes, it will maybe be some tougher quarters, tough to say, because I think the only thing that this '22 onwards have caused these cycles are much faster and frequent than it used to be. But yes, we are not too optimistic, at least in Europe, before we start to come towards the summer. It means that we will be quite ruthless in terms of how we plan our production schedule. It will certainly go down in slow steaming for quite a few of our units. Tough to say yet exactly what that means more than just volume will be quite a bit lower. But we need to and we have to, and we will prioritize value over volume, and that is a very clear choice that we will hold firm on going into '25.

[Operator]

And the next question comes from the line of Christian Kopfer from Handelsbanken.

[Christian Kopfer, analyst]

Sorry, Andrei, for -- I just wanted to just clarify a little bit on the guidance here. Firstly, you talked about around SEK 100 million further higher fixed costs in Q4. But I understood that was primarily seasonal, right? So we should expect those -- that to be a little bit more of a one-off in Q4?

[Andrei Kres, executive]

Yes. That's correct. Yes.

[Christian Kopfer, analyst]

And then when it comes to your prioritizing price over volume, that's perfectly fine. But just how much did you expect volumes to come down in Europe for Q4, 20,000 to 30,000 tonnes?

[Andrei Kres, executive]

I think where we stand now and looking into both regions, I mean, we see a volume decline of 10,000 to 20,000 tonnes, both in Europe and also in North America in quarter 4 compared to quarter 3.

[Christian Kopfer, analyst]

Okay. So it was total 10,000 to 20,000 for the full group?

[Andrei Kres, executive]

Yes.

[Christian Kopfer, analyst]

Okay. Got you on that. Sorry for asking. And then I just was a little bit puzzled, Andrei, when you talked about -- I mean, I understand that you prioritize price over volume. But on the front page, you say price pressure in Europe. But still given that you expect to have a flat pricing on your European operations?

[Andrei Kres, executive]

Yes. I think as we look into quarter 4, again, we do expect to hold our pricing. Now with the weakening of demand that we see happening in quarter 4, we do expect some intensified pricing pressure primarily into 2025. But for the fourth quarter of this year, we will confirm on our pricing positions.

[Operator]

We will now take our last question. The next question comes from the line of Ephrem Ravi from Citigroup.

[Ephrem Ravi, analyst]

Most of my questions have been answered. Just one clarification on the working capital. Apologies if I missed it. Could you kind of give a sense as to which areas the working capital increase was coming from? Is it -- from a geographic perspective, is it Europe or the U.S.? And then if it is in Europe and if it is inventories, inventories have gone up a bit, which product types are kind of building that?

[Ivar Vatne, executive]

Yes. So in terms of the working capital buildup, this has been really happening in Europe. Inventory build has been one component. It has been the minor one of them, but we do build up some inventory ahead of our maintenance shutdowns and had some overhang of that inventory at the end of the quarter. As I mentioned, we will take production schedule choices in quarter 4. So we do expect to bring down our inventory.

Now the second big part was really timing of our operating liabilities also in Europe that we had a negative timing impact now in quarter 3.

[Operator]

As there are no further questions, I would now like to hand back to Lena Schattauer for any closing remarks.

[Lena Schattauer, executive]

Yes. Then we will soon conclude this conference. Just a reminder, our next earnings presentation will be on the 4th of February when we report our Q4 and year-end results. And already before that, the 2nd of December, as you have heard, we will host a Capital Markets Day in Stockholm. And information on how to register for that event can be found on our web page under Investor Relations.

So with that, we say thank you for participating today, and goodbye.

[Operator]

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