BLRDY - Billerud AB (publ) (BLRDY) Q3 2023 Earnings Call Transcript
2023-10-28 08:57:02 ET
Billerud AB (publ) (BLRDY)
Q3 2023 Earnings Call Transcript
October 25, 2023 02:30 AM ET
Company Participants
Lena Schattauer - Head of IR
Ivar Vatne - CEO
Andrei Kres - Acting CFO
Conference Call Participants
Robin Santavirta - Carnegie
Linus Larsson - SEB
Cole Hathorn - Jefferies
Oskar Lindstrom - Danske Bank
Johannes Grunselius - DNB
Presentation
Operator
Hello, and welcome to the Billerud Q3 Report 2023. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Lena Schattauer, Head of IR. Please go ahead.
Lena Schattauer
Good morning, and thanks for joining this conference call following the publication of 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 speakers. Ivan, please go ahead.
Ivar Vatne
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.
And, overall, we are pleased with the results we delivered this quarter for Q3 having seen progress on several fronts where we have mobilized the focus of the company, which is highly encouraging. Versus year ago, we are down on most KPIs but we are also meeting a very high baseline period and 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 that are impacted 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 projects 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 Frovi 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 are down in net sales for both regions versus 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 customer side. And for the first time in quite some quarters, we are now seeing negative pricing impact versus year ago, mainly on containerboard, pulp, and sack and kraft. Some help we've had on the currency linked to development of the weak Swedish krona.
So next slide, please. And moving over to the profitability bridge, there are several sizable negative building blocks versus a year ago. We already mentioned the pricing and volume and mix, but we are on top facing additional input cost inflation, roughly SEK300 million versus year ago. The SEK175 million impact of 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 SEK419 million, where the two biggest items are impact from the inventory revaluation, just south of SEK300 million negative. And you should read that as SEK230 million positive in Q3 2022 and minus SEK65 million now in Q3 2023. The other point to mention here is the insurance proceeds of SEK75 million for yearly 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 SEK500 million positive. This is first and foremost, related to the very significant upgrade of the stocks in our Quinnesec Mill last year, which is -- obviously, it's not something we repeated this year.
Next slide, please. So over to some general market comments. And in a nutshell, you can say that marketing 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 the exception being liquid packaging board which has 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 and Luxury, overall weak condition, demand is soft and adds to negative pricing pressure. And lastly on this one, Industrial, probably the channel where we are most under pressure right now, I think the whole market would probably say the same. Sack paper is [indiscernible] in tough conditions, not least the brown bag with exposure to construction and cement. Going into Q4, we are not expecting very different market condition versus what we've seen in Q3. So it's relatively stable across.
And with that, I hand it over to Andrei.
Andrei Kres
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 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 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 sack and kraft segments will continue to deteriorate into quarter four, while pricing for other categories should remain relatively stable with some negative mix impact. Fixed costs for the region were down significantly versus previous quarter. That was related to the seasonality and timing of the fixed cost. These effects positively impacted the profit for the region with approximately SEK210 million and we will reverse those back in quarter four. Input cost decreased sequentially with approximately SEK200 million for the region.
Next slide, please. So some more color on the input cost development for the region. Most of the input cost came down during the quarter, with the exception for fiber. Our fiber costs peaked during the quarter and were up SEK40 million compared to second quarter with pulpwood up SEK80 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 from lower -- came from lower cost of chemicals, decreasing sequentially with SEK130 million. Energy was down SEK20 million and logistics SEK90 million, as we saw the new overseas contract yielding the savings.
Heading into the fourth quarter, we do expect to see about SEK100 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 minor correction on prices. The cost guidance now assumes that we remain on October levels in terms of electricity prices. We have currently 67% of our electricity exposure hedged in Sweden, which is a bit lower than we usually tend to have, so we are a bit more exposed here.
And then moving to US. And next slide, please. Net sales for North America declined with 24% versus 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 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 three. 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 four.
We continue to adapt our production to the low demand and our mills operated at below 60%, however, at higher rates than in quarter two. The pricing for graphic paper was stable in the quarter, while pricing for specialty and pulp were down. Both graphic and speciality pricing remained high and we are above the corresponding level last year. Going into quarter four, we expect pricing to hold firm with only minor pockets of pricing pressure within the categories.
Next slide, please. The North American input cost situation remained stable during the quarter. Total input costs decreased with SEK25 million versus previous quarter, and that was primarily driven by pulpwood and chemicals costs. Logistics costs were slightly up, but that was offset by lower energy costs. Heading into quarter four, we anticipate relatively flat development and only minor movements and that should in total bring us a cost relief of approximately SEK25 million.
Next slide, please. And as Ivar mentioned, we are very pleased with our cash flow performance in the quarter with operating cash flow conversion of 93%. The strong performance was enabled by our focus on working capital, which is now at 13% of our net sales, and we remain focused on improving our working capital position going further. Leverage increased slightly to 1.4, but it's still below our maximum target of 2.5. And now a milestone in the quarter was the development of our US pension plan funding status. As you might remember, when we acquired Verso in 2022, the operations had essentially only one debt item, which was the US pension plan at 900 million. At the end of this quarter, the plan was fully funded, and that was made possible by our contribution since the acquisition of SEK400 million and also favorable discount rate development.
In terms of capital allocation, CapEx for this year will be SEK3 billion, which is SEK100 million higher compared to our guidance in quarter two call, and this is -- increase is related to the movement of the Frovi recovery boiler project. For next year, we target CapEx of SEK2.3 billion with final payment for the Frovi recovery boiler of SEK100 million and base CapEx of SEK2.2 billion combined for both regions.
And with that, I would like to hand it back to Ivar.
Ivar Vatne
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 with a light heart we reached this decision and of this magnitude but it's our belief that it's needed for Billerud to continue to be well positioned going forward. The reduction program will impact both regions and also corporate functions, and we will now commence negotiation and dialog with the union as soon as possible. We expect the reduction to yield annualized saving of SEK300 million with majority of the run rate savings hitting towards the annual 2024. Restructuring cost of SEK100 million will be recorded for the fourth quarter and it will also be recorded as item 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 SEK175 million. And you can see in the gray box at the bottom of the chart some examples of where we have achieved good progress during the quarter. It also means that we are on track to deliver our ambition of SEK600 million savings for 2023.
Our effort and focus is now starting to shift towards making good plans for 2024, and this will continue for the coming months. We've set the bar quite high going into next year, delivering additional SEK700 million versus 2023, and if it will be successful it means that we are well ahead of our ongoing ambition to deliver the SEK1.5 billion by end of 2025. The FTE reduction plan we just went through, it will be included in the program and is likely one of the biggest building blocks that we have identified for 2024.
Next slide, please. And, yeah, it was mentioned also in the beginning, but some words about the Frovi 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 these complex projects 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 as one of the core Billerud 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 results, 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 acquisitions value in operating cash flow over the last one and a half years which is truly remarkable. We are more confident now on strengthening, I believe, 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 two years and we will need to adapt to this fact. It means we will be taking our time to evaluate new alternatives of the transformation program. And key for us is to land on a case that meets our strategic objectives, but at the same time delivers strong project financials and generate shareholder value. We will, therefore, not decide on the complete US transformation investment program by the end of this year as previously announced. We do not have a new timing estimate at this stage, but we will revert back when ready. And meanwhile, we will continue to build up our US commercial base of paperboard to export from Europe, and this is exactly as per plan that we will have a strong customer foundation to stand on the day we would have local paperboard production in North America.
Next slide, please. We continue to execute on our strategy and focusing on the core offering of packaging materials. It means we have divested some additional assets in the quarter. Our Managed Packaging business has been sold to Mimir Invest and that transaction was closed late August. We've also divested our ownership in the Paper Bottle Company to our joint venture partner Alpla. And the P&L impact of these two items are minus SEK29 million and was recorded as items affecting comparability for Q3. On top, we have an ongoing process to divest some non-strategic forest land, but there's no new news at this stage to report.
So next slide, please. So to round it up, conditions for Q4 largely unchanged versus what we experienced in Q3. We do expect the customer destocking to be largely completed by year-end, as 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 cost. And we are taking further steps to drive efficiency and securing Billerud's long-term competitiveness through reducing up to 350 positions.
And with that, I hand it back to Operator for Q&A.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Your first question comes from Robin Santavirta at Carnegie. Robin, your line is open. Please go ahead.
Robin Santavirta
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 or rationalization program, the fixed-cost reduction, seasonality, and then the lower input cost. 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?
Andrei Kres
Yes. Hi, Robin. So in terms of pricing, if we look sequentially for the European business, the pricing declined with approximately 4%. That was a combination of mix and pricing. Heading into quarter four, as I mentioned, we primarily see that the prices will decrease within sack and kraft business. So we expect the prices to decrease with 2.5%.
Robin Santavirta
Alright. Thank you very much. And if I could ask, what are you seeing in terms of order intake at the moment in Europe? You say the destocking in the supply chain, downstream, is starting to come to an end. Are you seeing better order intake at the moment in your European business overall compared to what you saw, say, three months ago when you reported Q2?
Ivar Vatne
Yeah. And also hi, good morning, Robin. A fair question and probably I need to split that up through the different categories for you 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, so for us that would be the liner and the fluting. I guess it's our view that we are likely on the way out of the bottom of the curve. Certainly, Q3 was better than Q2, and we definitely fill 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 volume is better 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 our other categories and more optimistic that the recovery has started going into kind of Q4 and 2024.
If I just go quickly through some other ones. I mean, cartonboard, not as strong and that's still a tough -- 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 dialog on certain projects and there is a bit more interest to get going. So you can say it's early signs that we might see some recovery also there, but that is still a bit further out, and our view is that we are a little bit more into 2024 before we see cartonboard starting to come up. So, certainly for the rest of the year now cartonboard 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 in early Q4. But it's also just a lot of capacity out there and it's definitely price pressure. So we are, in this case, chasing volume, which is less attractive and negative mix impacted. So we are quite, let's call it, cautious and yeah, not at all optimistic on brown sack for the time being. White sack, not much different, still soft and there 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 that good. So yeah, maybe a little bit better than the brown sack but still tough for the rest of the year.
And I think on kraft paper, yeah, you can say that it depends, also when you talk about MG versus MF, but relatively cautious. Not something that we currently can say a lot of evidence that order books, maybe a little bit better on the volume in Q3 and holding it stable, but we are certainly not saying that we are as positive as the -- at the moment feel we can say for containerboard.
Robin Santavirta
Thank you. And if I just chip in with one additional question, it is related to your North American business. Operating rates for you guys and for other producers are quite low or very low at the moment. Still sales price at 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 a risk that we'll see price declines in North America in 2024?
Ivar Vatne
Yeah. I mean, it's a fair question. And I have to say we have also been extremely impressed on how we managed a very difficult time in US. I mean, it's almost counterintuitive to make money but we have a capacity utilization of close to 60%. I think we also keep in mind that there is very few suppliers of graphic paper in domestic in US at the moment. That's certainly placing us well. And there is maybe a little bit different sentiment now than it used to be during the COVID, where people maybe are afraid of leaning towards import to the same extent that they used to be in the past.
I mean, I think, what we are saying is that still that destocking on graphic takes its time and it was very extreme on that category. It's kind of coming towards the end but we still feel that in Q4 there's also some big events in the US coming up in 2024, like the election, et cetera. So you can say that, hey, we might start to see some more pickup volume-wise when we are coming mid or little bit further out to 2024. But yeah, 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 are managing this really well and that's the best view we have for the time being.
Robin Santavirta
Thank you very much.
Operator
Please stand by for your next question. Your next question comes from Linus Larsson at SEB. Linus, your line is open. Please go ahead.
Linus Larsson
Thanks very much, and a very good morning, Ivar and Andrei. First question on North America. In your report you talk about focusing on the core, and I also see on Slide 17 that you talk about focusing on packaging materials. So my question is really how does a very active graphic paper 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
Yeah. Hey good morning, Linus. So let me start at least trying to answer your question. I think our comment this time around and also when we talk a lot about the focusing on the core is certainly also about taking some of our, what we call, non-core assets out, and we mentioned the case of Managed Packaging and also eliminating our position on the Paper Bottle Company and we don't know the time, but that's certainly part of why that front news was put out.
But you're absolutely right, I mean that's not a secret. We never bought Verso at the time to sit with that exposure on graphic paper long term. And the play has always been that we would convert to paperboard and that's still is the play. So I can still say that we are working on that assumption still that that would be where we are heading towards. And I just mentioned, we are taking our time now to find solution that will fill both the strategic play that I just mentioned on focusing on packaging material and coming to a good shareholder value proposition. So we do expect, let's say, if we fast forward some time that these stars will be aligned and it's a very good fit with focusing on the core and packaging material versus getting a plan in acceleration in US.
Linus Larsson
Great. That's very clear. So, when you talk about evaluating alternatives potential divestments in America is also on the table.
Ivar Vatne
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 two years and two years, we might have had our focuses on how this transformation might have been coming out. And now we need to adjust to that. So that means we need to think differently, we need to think differently on scope, 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
Great. Thanks. Thanks a lot for that. Maybe if I may just one more question on the Swedish pulpwood situation. If I understand you right, and please confirm, you have seen the peak in terms of pulpwood costs. And relating to that, I'm also thinking what's your view on your production footprint and your pulpwood consumption? Are you evaluating restructuring in light of the pulpwood shortage that we are seeing in the region?
Ivar Vatne
Oh, that's a good deep 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 massive amounts 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 pulpwood and fiber. And as the biggest buyer in the region, we need to take now some clever thinking of what is our play going to be, and there is many different items that we will be looking at, but clearly, we need to look at our portfolio, we need to look about our, let's call it, recipe optimization, we need to look more into lightweight. And this is an important point for us. So, let's say, that the Europe region has a big task on their hand to think about what are we going to do now, given this new environment, given that this is new normal to a large extent, and that surely means that we've also need to look over our footprint and how it matches our commercial ambitions. We are not ready yet to answer more on that, Linus, but I can say that we will certainly come back also in 2024 to talk a little bit about that, hey, our core strategies impact, that the environment have changed and these are some of the points that we will now drive in Europe region going forward.
Linus Larsson
Great, Ivar. That's very helpful. Thank you.
Operator
Please stand by for your next question. Your next question comes from Cole Hathorn at Jefferies. Cole, your line is open. Please go ahead.
Cole Hathorn
Morning, Andrei, Ivar. Thanks for taking the question. I'll take them one at a time because they're quite different. The first one is just more technical to understand the current run rate. Andrei, you talked about fixed cost savings is about SEK210 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
Yeah. So maybe you just ask the other one, Cole, so I just can write them up and then we take them one by one.
Cole Hathorn
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 is 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 speciality grades to just kind of understand what are the other options, as well as the boxboard conversion into future.
Ivar Vatne
Okay, good. Do you want to start the first, Andrei?
Andrei Kres
Sure. Hi Cole. So in terms of the fix cost, I mentioned the figure of SEK210 million and that was the -- obviously, the impact for Europe region, where the impact was the highest. In total, we expect approximately SEK300 million to come back in quarter four compared to quarter three in terms of fixed costs, and that is split in SEK210 million for Europe, SEK60 million for North America, and remainder for corporate functions or within the Other.
Ivar Vatne
Good. I'll jump on to the next point, Cole, which is fair again on the boxboard. No, 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. That originally [indiscernible] very clearly the Escanaba start with E4 in particular, and that's still what we are going for, but I can say that the main focus at this stage is to look at how can that be done in a clever way and in creative manners when we look at again scope. Think that also the -- how a big part of the machine today can be reused, what are absolute necessities to be done in terms of the infrastructure makeup in the mill versus what are the some of the points that actually we believe that we can leave it. And yeah, it means we had a clear hypothesis in the beginning and we concluded that will not work. So that's why it is a little bit back to the drawing board, get some more scenarios out. It means, certainly, working closely with the suppliers in this case to get the engineering studied in a good way possible. And that will take some time, and that's probably 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 2024 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 obviously are aware of this. We have been receiving a SEK200 million grant from the Michigan State, which is obviously a wonderful contribution on this very important project, not only for the Escanaba community but the whole of Michigan State. And that timing is certainly further down into the future. We are talking more towards 2032. So that is not the point that is stressing us for the time being on getting into the timeframe as soon as possible. So, again, we are 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 2024.
Cole Hathorn
Thank you. And then maybe just allow one follow-up, is when we are 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 are looking at that you think maybe have changed versus last year, where you kind of reevaluating kind of the longer-term growth profile and -- rather than kind of the short-term destocking? I'm talking particularly around maybe sack or some of those kraft papers, specialty kraft papers, where you're kind of changing your views rather than the liquid packaging board, which I imagine continues to be stable.
Ivar Vatne
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 2022 and a massive hangover in 2023. 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 we operate in and that's also why we would see positive growth going forward. That's the underlying foundation that we still work on.
It is true, though, that some of the points that surely is a concern for the industry, is part of some the EU directive that is kind of looming in the background. Look at that as PPWR, 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.
Cole Hathorn
Thank you.
Operator
Thank you. Please stand by for your next question. Your next question comes from Oskar Lindstrom at Danske Bank. Oskar, your line is open. Please go ahead.
Oskar Lindstrom
Yes, good morning. Three rather quick questions from me. The first one just on the US 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 US plans, are you able to give us any kind of CapEx outlook for 2024 and possibly even 2025?
And then finally, you mentioned the US 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 US election on to that? Thank you.
Ivar Vatne
Yeah. Hi, Oskar, good morning. 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 on this 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 are 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. It doesn't necessarily mean that we have something then to fully share but that's certainly something that you can expect from us.
Sorry, can you just repeat the second question, because I didn't fully get it?
Oskar Lindstrom
Yes. I mean, given your rethink on the US 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
Hi, Oskar. I mean, for the next year, we expect the CapEx of SEK2.3 billion, and that is basically the last part of the Frovi recovery boiler project of SEK100 million and then the base CapEx for the both regions of SEK2.2 billion. The level of base CapEx of SEK2.2 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, and -- but those will, of course, be communicated when we communicate the decisions.
Ivar Vatne
Yeah. And maybe if I just quickly jump in here. So I think you talked about the US 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 Follum, the BCTMP mill. I mean, it's progressing as well. We are not expecting to make a decision on that one before this summer or quite close to the summer. So you can say that, yes, if we would find that that project is attractive and something that the Board supports, it's reasonable to think that we will get some kind of a tail going into 2024, but I wouldn't have any number at this stage, Oskar, because that also depends on how we land at final stage and the recommendation, et cetera.
I think the third -- yeah, sorry, the third question you had on this US election and graphic paper demand, it's also a little bit difficult to say. I mean, [indiscernible] 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 do different is that a 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 US. So, again, everything else equal, it turns out -- well, it points towards having a pretty good volume uplift in graphic in US, 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 than when we go from kind of Q2 and onwards.
Oskar Lindstrom
Thank you.
Operator
Thank you. [Operator Instructions] Please stand by for your next question. Your next question comes from Johannes Grunselius at DNB. Johannes, your line is open. Please go ahead.
Johannes Grunselius
Yes, hello everyone. It's Johannes Grunselius here. 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 on -- related to the sort of near-term earnings components, can add something on the volume side. What do you think about volumes? Are they sort of stable or should we expect them to be maybe seasonal down or something in the fourth quarter? Thanks.
Andrei Kres
Yes. Johannes. So let me start with the pricing. I mentioned 2.5% that we expect the prices to decrease heading into quarter four. That is primarily related to Region Europe and within the sack and kraft business.
In terms of the input costs, sequentially, we saw the improvement in Europe of SEK200 million, that is in quarter three compared to the second quarter. For US, we saw a minor improvement of 25. Heading into quarter four, we expect improvement in total of approximately 125, split with 100 for Europe and 25 for North America.
Johannes Grunselius
Yes.
Andrei Kres
And then also Johannes, just to remind what I mentioned earlier on the fixed costs. So the fixed costs in the third quarter were approximately SEK300 million lower than what we expect for quarter four, combined for the Group.
Johannes Grunselius
Yeah. And shipments, how should we think about that, sequentially?
Andrei Kres
Yeah. So on the volumes, we usually see some seasonality, primarily on the European volumes that has historically been related to the working capital management by our customers. 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 four compared to the third quarter.
Johannes Grunselius
Okay. Okay. Got you. Then I think I saw in the presentation pack or maybe the Q3 results that you take some upfront costs, right, impacting the fourth quarter, but you have a quick benefit of that. Can you just maybe elaborate a bit on that?
Ivar Vatne
Yeah, I can take that. So it's related to the restructuring cost as we mentioned, it's 350 positions that we have announced today and that we will take as an item impacting comparability now in Q4. Back on that, you can say that it's certainly coming in 2024 at some point. And the reason why I cannot give you much more at this stage is that now we will be working with the unions in both regions to nail down what that plan component looks like. But we will obviously come back to this in the beginning of 2024 and also how it fits with overall delivery of our efficiency enhancement program.
Johannes Grunselius
Okay. Okay. Very clear. Thank you.
Operator
Please stand by for your next question. The next question comes from Cole Hathorn at Jefferies. Cole, your line is open. Please go ahead.
Cole Hathorn
Thanks for taking the follow-up. I just wanted to ask on kind of the pricing dynamics, kind of, medium-term, we've seen wood costs structurally higher in the Nordics. Are there any categories that you feel you still need to go back to the negotiation table and to raise prices to kind of offset the higher wood costs into the future? And I'm thinking more liquid packaging board. You've got long-term contracts, those contracts in 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 at par? Thank you.
Ivar Vatne
Yeah. 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 are happy with. Input cost still remains on a extremely high level. So it's definitely part of what are on the table and being discussed on, yeah, pricing situation in liquid packaging. I can confirm that.
Cole Hathorn
Thank you.
Operator
Thank you. There are no further questions. So I hand back to you for closing remarks.
Lena Schattauer
Okay. Thank you. So thereby we conclude this conference call. Thank you for joining us this morning and we'll come back January 26 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.
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Billerud AB (publ) (BLRDY) Q3 2023 Earnings Call Transcript