Billerud AB (publ) (BLRDY) Q2 2023 Earnings Call Transcript

Billerud AB (publ) (OTCPK:BLRDY) Q2 2023 Earnings Conference Call July 20, 2023 3:00 AM ET

Company Participants

Lena Schattauer - IR

Christoph Michalski - President and CEO

Ivar Vatne - CFO

Conference Call Participants

Robin Santavirta - Carnegie

Martin Melbye - ABG

Johannes Grunselius - DNB

Christian Kopfer - Handelsbanken

Cole Hathorn - Jefferies

Andrew Jones - UBS

Operator

Good day and thank you for standing by. Welcome to Billerud Q2 Report 2023 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 speaker today, Lena Schattauer. Please go ahead.

Lena Schattauer

Good morning, everyone, and welcome to this conference call about Billerud's second quarter results. Here in Solna is our President and CEO, Christoph Michalski; and also our CFO, Ivar Vatne. They will hold the presentation, and after that, we will open up for questions from the audience.

So with that, I hand over to Christoph for an introduction of the quarter.

Christoph Michalski

Thank you, Lena, and good morning, everyone, and I hope you're all spending a good summer, and thank you for attending our call.

I think the first slide of our presentation says it all what happens in - what happened in quarter two, which is really about navigating a very challenging market condition, and you have seen that in our numbers. It is basically qualified by very low volumes and continued customer inventory destocking in a very soft end market.

So I think this is really still the overhang from 2022. We have seen this very strongly in quarter one. It has continued in quarter two. And because of the lower end demand, in general, the destocking was much slower than what we initially anticipated.

On the pricing side, we have quite stable prices in North America and some deterioration in Europe. But in Europe, we just have to remind ourself, we had, I think, record pricing in 2022, and these levels are starting to erode slowly. Clearly, input costs came down, but did not offset the price deterioration, and this resulted in significantly lower margins.

You have heard about our blastomycosis outbreak in the U.S. I think we - after resuming operation on May 8th, I think we believe that it's probably behind us and everything since the start-up in May 8th is pointing in the right direction.

We had some revaluation of inventory, which also impacted our result to some extent. But on the positive side, we had positive cash flow for the quarter and very tight control in inventory. I want to remind you, we had a little bit of two high stock coming out of '22. And over quarter one and quarter two, we were able to bring down the inventory level to a reasonable level and - or I would say, the normal level.

Ivar will later on talk a little bit more about the enhancement - the efficiency enhancement program that we have accelerated to aim for SEK600 million for this year, and give - he will give you some examples of what are these type of activities.

But overall, you can see net sales have been declined by 13%. Adjusted EBITDA is SEK188 million, so in line with our previous profit warning in June. And unfortunately, EBIT is basically now minus SEK5 million of net sales and earnings per share were negative at minus SEK2.

If we look at the bridge for net sales, you can see that basically the key impact has been volume and mix, and this resulted in a 19% decline. The pricing was basically stable, no change and currency rates had a positive effect of 5%.

I think the whole story of the quarter is even better described in our EBITDA bridge, and here, you can really see the difference. If you take volume and mix you see a decline of SEK1.175 billion, and this is basically a mix of soft demand, which is the majority, then we have some mix changes.

For example, when we could not produce paper, we actually produce pulp, and clearly, there are different price implication on that. And then also, we have a slight mixed effect on customers. As with the soft demand, we are also chasing some non-core customers in non-core regions, which results in slightly lower pricing.

When you look at the net of raw material and logistics minus SEK611 million, clearly, a very significant impact still compared to quarter 2 last year. And the efficiency enhancement program shows for SEK130 million positive, and this is basically - as you know, we started this in January, February last year - sorry, this year, and basically, we'll see an acceleration of this program in the bridge, as time goes by.

Here, a little bit of inventory revaluation, clearly SEK400 million, nearly SEK400 million. And then in others, you also have the effect of Escanaba, so others actually normally a little bit lower. And then adjusted for maintenance schedule, et cetera, we arrived at SEK188 million.

Good. Probably most of you are interested in what we think the market will do and what the market is doing. So let me spend a little bit more time on this slide. We do not - I think it's an important message to understand that what happened in quarter two is very likely to continue into quarter three. So we do not expect significant changes in the market condition in quarter three.

Liquid packaging board, one of our largest segment is basically probably the segment, which is the most stable. Demand is relatively stable, even a bit softer than usual, but nothing really to be worried about.

Liquid packaging board, we see no change in Europe, a little bit of ups and down in the D&E world, and we do not expect that this market will have either significant down or upturns in the following quarters, as time goes on.

Cartonboard, clearly, very different story. I think there's still a lot of stock in the system being out between our converters and brand owners. We see relatively low consumption at this stage. So this situation will probably continue for a while. And in this market environment, however, we do not see many dynamic price effects, so relative stability.

Containerboard is actually better. I think we have now reached up approximately the level of destocking that would be normal, and the demand and consumption in the market is relatively good. You also understand we have some exposure to the harvesting in Southern Europe. So basically, demand is picking up. But there is in the segment, undoubtedly more price volatility than we see in containerboard.

Kraft and specialty paper, we have weak demand, and we see this not to change significantly to the end of the year. And we see some price erosion in the segment but coming from record height in - from 2022.

Sack paper, I think we - what we see is low demand, but we see that the paper stock in our converters has been coming down to reasonable or even low levels. However, the portion of high - of finished goods in their stock is still relatively high, so that we actually see relatively low demand for the time being.

And I think another indication that this market is not normalized yet is the fact that converters are taking significant breaks during the summer holiday, which I think a normal would be one week or two weeks, it's more three weeks to four weeks, as we can see.

Graphical paper is entirely focused on the U.S., and we see low demand, but very good price stability. And I think when you look now in our new segments - segmentation of the region of how we report our numbers, you see excellent profitability from contribution level despite low utilization. So it's very promising. So we think that in the U.S., when graphic paper will start again, which should be in end quarter three, maybe quarter - a big - beginning quarter four that we see a significant uptick.

Good. I will not really comment on pulp. As you know, the pulp market, we are - we're a bit long this time because we had lower production and curtailment from a cartonboard and paper side. But basically, the pulp market in terms of pricing remains weak, and we see also relatively low demand.

But generally speaking, as soon as our production starts again, we will be basically a wash on pulp, and therefore, it doesn't have a significant impact on our business. Good. I hope that gave you some color of what we see in the market. It's not particularly a positive outlook, but it's not getting worse.

And having said that, I would like to hand over to Ivar. Good morning, Ivar.

Ivar Vatne

Thank you, Christoph, and good morning, everyone.

I wanted to quickly give an update on how we are changing our reporting structure now in Q2 and how it's going to look like going forward. And basically, we move to a fully regional setup, as this is very closely mirroring our operating model within the company.

We'll have the Region Europe with all of the material sales and the different production units then within the six categories. And for the Region North America, which is material sales from our two production units in Upper Michigan. And for now, we're talking about the three categories we are exposed to, but we're obviously hopeful that we can start adding paperboard in the not-too-distant future.

So we have a third column, as well on this slide, so that's the Solutions & Others, and that would then consist of managed packaging services within wood supply. It's a cost center for some of the staff functions on typically HQ basis. The currency hedging you'll find there and some impact of non-core assets. And this category will obviously be looking a bit different from Q3 when we expect to move the managed packaging, but more about that a bit later.

So let's get into it and start with Region Europe. And yes, it's certainly been a challenging quarter for Region Europe. We are not experiencing business, as usual, and we're having to manage large cost increases in a very unpredictable future.

Going through the numbers, negative sales volumes pulling the net sales down to minus 4% versus a year ago. We're seeing most categories now are coming into negative growth, as sales prices are starting to drop in combination with somehow or somewhat softer volumes.

Pulp is growing, as we're allocating more of the machine downtime towards the pulp. Kraft paper is also on positive growth with strong performance from in particular, white MG. And last but not least, we see growth coming from the liquid packaging board fueled by the pricing position from the beginning of the year.

In terms of the profitability, it's clearly under pressure with input costs close to SEK700 million versus a year ago, and in particular, this is driven by pulpwood, and we're not expecting pulpwood to come back down to previous levels anytime soon.

The cost inflation is only partly offset by pricing, help from our efficiency enhancement program and currency. So we'll need to do more to improve the situation and keep working hard on driving profitable mix and review pricing position with our customers going forward, as the current profitability level is not satisfactory.

So with that, let's move into some more details on the input costs for Region Europe. So as I mentioned, versus a year ago, the input cost inflation for Europe is around SEK700 million. Now that we look versus previous quarter, we are starting to see some of the cost component easing off.

So we've seen in the quarter a cost relief of around SEK200 million versus Q1, which is roughly equally split between chemicals and energy. Fiber was up SEK30 million, but we saw a pretty similar cost relief on the purchased pulp. Logistics, in this case, was stable.

Now going into Q3, we would expect to see another SEK90 million of additional cost reduction, so that would be then compared versus Q2, and this would mainly be expected to come from chemicals, and in particular, the caustic soda, which has been falling hard over the last couple of months.

Logistics should give us another SEK30 million or lower cost, as our new overseas container freight contract is starting to kick in. However, the fiber cost is estimated to increase by SEK55 million, while we should see pulp coming down by another SEK25 million. Energy looks to be relatively stable, maybe a small help given how the June spot prices have materialized.

Right. So with that, let's move over to the Region North America. So like in Europe, I mean, it's been a very tough situation also in the U.S., but for partly different reasons, I would argue. Demand has been extremely slow with customer destocking continued and softness in the end user markets. And in the U.S., now we are operating with a significant production curtailment and operate with more - well, roughly around 50% to 60% utilization rate over in our two mills, which is completely unprecedented.

On top of this, as Christoph also mentioned, we had the blastomycosis outbreak in Escanaba and I had to idle a mill for several weeks in April to perform a long list of cleaning activities. But I'm very happy to inform that we are resuming production in the Escanaba mill in early May, as per plan and all of the cleaning activities were executed successfully.

I mean, so with that background, we are actually pretty happy with the performance of the U.S. region also in terms of our profit delivery. The underlying or structural profitability is rock solid. And what I refer to that is the gross margin, which will find north of 50% and that enabled us to close the quarter with a positive result despite a very, very soft volume we found in the quarter. So we remain very excited about the North American region, and we are very proud actually how we have been able to maneuver through a very tough quarter.

So if you go to next slide, please, just some points around the input cost also for North America. I mean the situation is much more stable versus what we've seen in Europe. That has been the trend for quite a bit of time. We've seen roughly SEK50 million of cost reduction coming in, and that is compared to Q1.

Yes, it's roughly equally split between energy and logistics, and fiber and pulp wood came down by around SEK50 million. That was pretty much exactly offset by some chemical increase. And going into Q3, we do expect another small help, as the input cost is keep trending down, and we estimate roughly SEK30 million versus Q2. And in this case, we expect that mostly to come from fiber and pulpwood and some small savings from chemicals and energy. Logistics, in this case, estimated to be flat.

Good. So let's move into the next slide and some words about cash flow. I mean, we've successfully draw up our operating cash performance in the quarter, and this is also something, which is very pleasing to see as that has been a very clear company priority.

And it's first and foremost, coming from the working capital, where we have continued to drive down our finished goods inventory across both regions. And as also Christoph mentioned, we're now on the inventory level for both regions, but we're happy with and also sit on a good level when we benchmark versus historical levels.

Balance sheet is still solid and keeps the debt ratio sound and way below the target. And I also just wanted to inform that we have renewed our credit facility during the quarter, and we have that now secured until 2028, which is good news. For CapEx, we do maintain our guidance for 2023 and unchanged at SEK2.9 billion.

Good. So next slide, please. And I just wanted to give a little bit more color also on one of the very clear company priorities for the coming - well, this year and also for the coming years, and that's our performance in this efficiency enhancement program. We are off to a very good start on the whole program, and we delivered another SEK130 million now for the quarter, taking our result up to SEK225 million for the first six months. There's a ton of energy throughout the organization to succeed on this basically across all of our operating units and functions. We obviously recognize the challenging financial situation we're in, so we literally need to do more faster.

Now the confidence we've gained on this program during the first half enabled us to raise the ambition for '23 delivery up to SEK600 million. And we will need to do this through a combination of adding more items and accelerate further different potential pockets we have identified. This is not a sprint, but we also mentioned this is a 3-year program, and we are simultaneously working on the program plan of what items we can expect going into 2024.

So with that, I hand it back to Christoph.

Christoph Michalski

Thank you, Ivar.

So there's also some good news, so to say. I think, as you know, we were incredibly concerned at - in April and May - sorry, in March, April and May concerning the outbreak in Escanaba, but I think with the hard work together with all the health authorities, we are now pretty confident that the worst is behind us.

We idled Escanaba for three weeks in order to do property clearing everywhere. We still don't know, where the outcome came from. But I think we have a pretty good time horizon when it was, and that was probably at the end of the year into January, considering the time frame of the cases that we have registered.

The health organization in the U.S., NIOSH has basically done mass testing and mass sampling across the mill in May, and this allows us, hopefully, to gain more understanding. But by assessing all these samples, 477 samples was taken, we haven't found any higher concentration or any source of the outbreak yet, and that gives us some confidence that probably this event is behind us.

There will be a full report published and made available, but this will take time because these samples have to be grown and then DNA tested. And also, I think there's still some work ongoing when it comes to the mass testing of 600 employees and contractors, who basically went for voluntary testing in order to gain more knowledge of where and how the outbreak could have had - could have passed.

Okay. In terms of impact, the impact is about SEK85 million. You remember, we valued the impact, I think, around SEK150 million in quarter 1, as a quick estimate of what it would be. It was a little bit lower because through the low demand in North America, the contribution aspects were lower than we expected. And I think the cost was around SEK60 million when it comes to all the cleaning activity that we have performed.

Very good. Then we have a number of capital projects you're aware of. I think the very good news is that the Frovi boiler is basically advanced in time. So it's 4 months earlier than the deadline for the boiler, and it's also under budget. The other good news is that we changed a bit the scope, and this is now a full biofuel recovery boiler, which will not use any type of fossil fuel going forward.

The margin - the CapEx savings are mainly around a good negotiation with suppliers, very disciplined project execution. And also, clearly, as we say, time is money, the fact that the project is moving faster than anticipated also deliver some savings.

And if you think about the periods in which we build this boiler, which was the cement crisis in Sweden, but also the COVID, I'm incredibly happy with the team performance to deliver this project as it is.

For the U.S., we are progressing very fast and very well, but clearly, the project complexity and size makes it a challenge. Just to remind you, it's about the transformation of one paper machine into cartonboard. It's about a new BCTMP mill. It's about the new wood yard.

It's about basically rendering the mill in line with our sustainability ambitions and customer needs. And therefore, the project is not yet at the same quality, as I would like to see it, as we had for Frovi, and therefore, we will take a final look at this probably more at the end of the year in order to decide when to order equipments to start up.

We signed with the Government of Michigan, a grant and tax relief agreements, which will basically follow this project to 2030. And we also started with, I would say, a very important, but minor CapEx, which is basically to create a good infrastructure for this transformation by building two bridges across the river in Escanaba, which will allow us much easier access and for people and vehicles into the facilities.

The second big project for importance, particularly in Europe, is our Norway project, which is progressing really well. We have now finalized most of the contract negotiation with Viken Skog when it comes to our joint venture for BCTMP plan. The project feasibility phase is progressing very well. And we will basically look at all the CapEx projects together at the end of the year to optimize our phasing and the timing of these different projects. And therefore, a decision on Norway will also be at the end of the year.

I think you're all aware that we have changed strategy about 2.5 years ago, where basically the key focus has been what is our core business, and we should focus on the core. And I'm very happy that we have finally divested now Managed Packaging, not because it was a bad business, but it was not in our core activities. We also exited some holdings. We still had from the venture fund and basically sold Kezzler, our shares in Kezzler.

And finally, we are also looking - we still have some reminiscence of forest properties, which we call [indiscernible], which is one of the Bergvik Ost that were not integrated in Bergvik Ost. And we are also looking at basically divesting non-core assets in order to really be razor-sharp on our primary packaging strategy.

Okay. When it comes to the outlook, I think no surprise, as I said before, we expect the weak demand definitely to continue into quarter three. We will see some recovery by the end of the year in the U.S. But I think the bulk of the European recovery will be late - very late in the year, beginning of next year. We will continue to manage stocks very, very carefully in order to basically safeguard cash, which basically means that we will manage some curtailments, as we go along.

And unfortunately, despite we think that prices will - are probably where they should be in the market, but we will have some negative mix impact just by the fact that we sell more pulp and that we are chasing maybe volumes that in normal circumstances, we would not chase.

And then finally, good excellent progress and continuous acceleration with our delivery - with our efficiency enhancement program. And as Ivar said, we are very happy about the engagement and the motivation in the company to drive these projects forward, and we see very serious progress also in terms of financial delivery.

So that was our presentation for this quarterly two, 2023 review. I think I will now hand back, and we will open for questions. I would be grateful if you limit yourself to one or two questions, and then ask the next ones after that, so that we can answer properly.

And yes, please, operator, if you take back for questions. Thank you.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Robin Santavirta from Carnegie. Your line is open.

Robin Santavirta

Thank you very much, and hello, everybody. Now I have two questions. The first one is related to demand and volumes. Now you, along with most of your peers have suffered for quite weak volumes now in Q1 and Q2. And as I understand, although on the back of your comment, the outlook for Q3, at least is still quite weak. Is this now - to what extent in your view customer inventory destocking? Is it import volumes from Asia to some extent or underlying demand? And when do you expect sort of the demand and volumes or the performance to improve? So a bit more sort of color, I would appreciate. And also, just sort of directly Q3 volumes versus Q2, maybe for Ivar, you sometimes, I thought given an SEK1 million sort of Q-on-Q estimate? Is there something that you could share on that one? So that's the first one.

The second one is just maybe a technical question related to the inventory revaluation write-down you had in the quarter. What should we expect for the remaining quarters this year? So those two? Thanks.

Christoph Michalski

Okay. Thanks, Robin. Good. Let me give you a little bit more color then on how we see demand and volume develop. So I think two things. First of all, as I said, across different categories, we have slightly different stocking issues. If I start with the U.S., I think we expect that stocks should hit normal level by quarter three, and then it's a question, which month and probably we say September, October, so quarter three, quarter four. We have actually seen a record low number of imports into the U.S., so I think the imports are also affected by this low demand.

And when it comes to the demand in the market, you all know that our products grow and perform in line with GDP growth and economic activity. And then your guess is probably as good as ours when the base demand will basically start up again. I think what we see is the destocking effect will have already some very positive effects for us because then the curtailment will with all likelihood stop. And then, it's just a matter for the demand to recover a little bit, as the economies will recover.

But as I said before, then your guess of saying when that will happen is as good as mine, and we expect 2024 being significantly better. But we do not know when the acceleration will happen, be it in quarter three, probably more in the U.S. and in quarter four, normalized. And then in Europe, it will probably happen by the end of the year and then definitely, hopefully, in quarter one. So that's my view on just volume development. Do you want to give some color on the impacts?

Ivar Vatne

Yes. I mean - good morning, Robin. I think as Christoph said, I will be quite careful of adding too much quarter-over-quarter. It's not unreasonable to at least assume that we will get a little bit more volume in North America in the back end of the idling we had over the Escanaba mill. I'll be talking here maybe SEK20 million to SEK30 million impact just in terms of some of the tons that we - probably in more circumstances would have sold.

We would also get a little bit probably more volume just based on the maintenance schedule was a little bit heavier in Q2 versus Q3. So - but that's already in that number. So remember, we had SEK400 million of maintenance cost in Q2. We estimated roughly SEK300 million in Q3, as we will do the Karlsborg, Gavle, and part of Escanaba.

So we will get another SEK100 million help from there. But just keep in mind, you don't double count that is just on the maintenance facing more than anything else. I would argue that most of the other stuff on the underlying performance should be pretty stable Q3 versus Q2, as Christoph alluded to.

Robin Santavirta

Inventory?

Ivar Vatne

Yes. So no - so your second question, Robin, on the inventory revaluation. And yes, I was somehow expecting this question to surface. We don't really normally talk about inventory valuation since that impact tend to be relatively limited. And just as a bit of a reminder for everyone on the call that we do basically value our inventory and we do that estimate every month. If you lose the last two months of, you can call it, the cost - why input cost average to do that valuation. And normally, you would see typically a plus/minus SEK50 million between the quarters, that I think is usually a good range of what we see.

The reason why it got so much bigger this time was that we did see a very clear trend shift from the end of Q1, where the input prices were spiking and they're starting to fall quite sharply going into Q2. So to your question, then, if you think about at least for Q3, we are expecting, and I also mentioned this that the input costs will be falling.

So I think, let's say, maybe up to SEK50 million or in the range of the SEK50 million of additional help on this case is not unusual to expect. But if you're thinking about long term and over kind of quarter, typically would be plus/minus SEK50 million.

Robin Santavirta

Thank you very much.

Christoph Michalski

Thank you, Robin.

Operator

Thank you. We will now take our next question. Please standby. Our next question comes from the line of Martin Melbye of ABG. Go ahead. Your line is open.

Martin Melbye

Yes. Good morning. You gave the input cost changes quarter-over-quarter. You said SEK90 million plus SEK30 million, right? That is the sum, so SEK120 million. Is that correct?

Ivar Vatne

Sorry, you meant Q2 versus Q1.

Martin Melbye

Q3 versus Q2.

Ivar Vatne

Q3. Yes, yes. No, exactly. So Q3 versus Q2, we do expect roughly SEK90 million from Europe, SEK30 million from North America, yes, confirmed.

Martin Melbye

Excellent. And then a follow-up on price, you're saying negative mix and price reductions, what would that be in SEK for Q3?

Ivar Vatne

Yes. So this is obviously, where it starts to be fairly estimate, I think Christoph mentioned just wanted to say that first. I think there will be a combination of some selective price adjustment. There will be also then probably some negative mix just because of category impact, I mean, the one point, but also that there will maybe be some customer mix impact.

But what we estimate, if you talk about the material sales first, we would be looking probably around SEK130 million. So that will be then a price drop Q3 versus Q2. Rough split of that between the region would be somewhere in the area of SEK50 million for U.S. and about SEK80 million from Europe.

Just keep in mind, we don't really talk about it, but since now there's so many movements on the pulp piece, we're obviously not the most exposed company in the world in terms of pulp, but we do expect to see also a drop now of SEK120 million-ish on the pulp pricing. And roughly between the region, that will be SEK50 million North America, SEK70 million Europe.

Martin Melbye

Okay. So it's SEK120 million plus the SEK130 million.

Ivar Vatne

Yes.

Martin Melbye

Excellent. And then the last question, you mentioned this Bergvik Ost maybe up for sale. What is the book value there, please?

Ivar Vatne

Yes. So for the 9,000 hectares that we're looking into now, we estimate that book value to be in the area of SEK100 million.

Martin Melbye

Thank you.

Operator

Thank you. We'll now take our next question. Please standby. And our next question comes from the line of Johannes Grunselius of DNB. Please go ahead. Your line is open.

Johannes Grunselius

Yes. Good morning. Johannes here. My first question is on the ongoing investment project in the U.S., very key for you, obviously. Christoph, I think you mentioned it's highly complex and so forth, I understand that. Have you seen anything that have increased in terms of complexity basically over the last few months since your last update. And with a lot of companies seems to walk away from investment projects at the moment, is it fair to assume that this also have an impact on the prices for equipment in your favor?

Christoph Michalski

Okay. Thank you. Good morning, Johannes. Look, I think when it comes to the initial scope when we acquired Verso in 2022. The scope is exactly as we expected it. So there's no significant change there. There's always some minor changes.

For example, with the granting, we might do a little bit more work with the ground of the Michigan Government. We will do a little bit more work on the sustainability aspects and these types of things. But I think the overall strategy in terms of - or the scope of what needs to happen is very much the same.

Clearly, we have seen ups and down of CapEx cost and prices and quotes and things like that, which you probably - which you alluded to. And I think we're in a much better space now in this type of discussion with our suppliers and in the way how we will look at the CapEx and phase the CapEx and things like that.

But as I said before, we need a little bit more time to bring it to a planning quality that will allow us to deliver this project on time and in budget. And that I expect now to be around the end of the year that we have all the facts on the table. And then - then we need to take all the projects we have and phase them in a proper way, so that we can financially and in terms of investment strategy have an optimized portfolio.

Johannes Grunselius

Okay. Got you. And then my second question, maybe I missed this in the initial part of the call, maybe the data - information is in the report. But ahead of Q2, I think you guided for inventory effects of minus SEK280 million. What was the actual outcome? And Ivar, did you - is your message that we should expect this number to be slightly positive in the third quarter?

Ivar Vatne

No. I think we guided for in the end SEK310 million, and that was versus you can call it, a Q2, I think now the number that was shown in the bridge versus a year ago. So I think we came in pretty close to that estimate versus Q2. But yes, I did say also to Robin, that typically plus/minus SEK50 million is kind of normal movement. I just want to actually correct myself, so good that you asked this, but I think I accidental said to Robin, there will be SEK50 million help going into Q3 versus Q2. Obviously, since the prices are still falling, it will be a hurt. So up to SEK50 million hurt in Q3 versus Q2 is currently best estimate.

Johannes Grunselius

All right. Got you there. Maybe I can take a final question as well, and that is on North America because, I mean, in a normal market, when you have weak operating rates, there is a price pressure, not this time it appears. But are you comfortable that we will not see that the price discipline continues in the U.S. in the coming quarters?

Christoph Michalski

Yes. Thank you for that question because that's clearly - I mean, the U.S. is a very different market from that perspective than Europe. Europe is far more fragmented both in geographies, but also in players. And I think in the segments that we are now playing in the U.S., we have limited amount of competitors. We have imports, which can come in and the U.S. dollar is still strong, but the lead times for these imports are quite long compared to local production. And so what we see in, I think, in the short term is, we don't believe there will be any significant price erosion in the U.S.

And imports today are at historic low. So basically, I think with all our customers, we are discussing, it's basically the message is, hey, as soon as our stocks are at a level, where we need to reorder, we will come to you, and there is no particular price change forecasted, as we go forward.

In the long term, I do not think that will change significantly either. As you know, we are the most cost-effective operations in the U.S., and I think there might be other mill closures. So I think the remaining of the graphical market, especially in the added value segments, we are playing, it's a very good market at this stage.

Johannes Grunselius

Okay. Thank you.

Christoph Michalski

And just to - maybe to add to that very quickly, it's very different than in Europe, okay? So you cannot just take the graphic market in Europe and basically convert that to U.S. The market dynamics are different.

Johannes Grunselius

Thank you.

Operator

Thank you. We will now take our next question. Please standby. Our next question comes from the line of Christian Kopfer of Handelsbanken. Christian, your line is open.

Christian Kopfer

Yes. Thanks for that operator. Two questions from my side. And firstly, on the revaluation of inventories that you mentioned here. Just to clear, if I made my math correctly here. So if I do - if we just isolate revaluation of inventories going into Q3 versus Q2, that in isolation, that should mean that result should be around SEK260 million better in Q3 versus Q2?

Ivar Vatne

No, no. So we basically revalued now the inventory end of Q2 on, let's call the reflecting the current level of pricing. And given pricing expectations are that they will be coming a bit down into Q3, we would expect then about, let's say, up to SEK50 million help - hurt Q3 versus Q2.

Christian Kopfer

Yes. That I understood, Ivar. But I thought you had a P&L effect of some - at least if I go by the guidance in the - call it preannounced numbers that you said that you had some SEK310 million negative from revaluation of inventories in Q2. So that was included in the P&L for Q2 here?

Ivar Vatne

Yes. So that's basically the impact. So that's the impact. So you can argue that we had a help in Q1 and then now we got hurt in Q2. So the difference is up to the SEK300 million. And in that sense, now we expect a much smaller impact going into Q3 versus Q2. So the number should be in that sense also much, much more moderate and the SEK50 million is the best estimate.

Christian Kopfer

Okay. So - okay. So the delta - the earnings delta when it comes to inventories is SEK50 million lower there. Okay.

Ivar Vatne

Yes. Correct.

Christian Kopfer

Okay. Okay. Sorry for that. And then on - yes, and then on the logistics. I think Ivar, you have mentioned previously expect a quite material positive impact from more effective logistics or change of logistics and that should be kick - that should kick in, in Q3, right? But you mentioned that you - if I remember correctly, you mentioned I thought you have SEK30 million positive impact from lower logistics costs in Europe in Q3 versus Q2. Is that the full effect of the better logistics...

Ivar Vatne

No. It's --yes - it's a good question, Christian. I think it's also partly because the activity level now is a bit lower in general. So you can say that it probably reflects also some of the volume softness we have. I would probably argue that number should be more in a SEK50 million per quarter in a normal. So let's say that we probably will also expect to see going into Q4, et cetera, a bit more of a saving on that one. But a good chunk now will come in, in Q3 versus Q2.

Christian Kopfer

Okay. That's understandable. Okay. Thank you very much for that.

Operator

Thank you. We will now take our next question. Please standby. The next question comes from the line of Cole Hathorn of Jefferies. Please go ahead. Your line is open.

Cole Hathorn

Good morning. Thanks for taking my question. Christoph, I've got - in the past, you were focused on kind of optimizing machine uptime and the wider production base of Billerud, and I'm just thinking that with wood costs being higher for longer, is there an opportunity to think about some rationalization of your current European footprint? And can you give any color of how you're thinking about that? Because I mean, if you are taking advantage of some sales that you probably wouldn't do in normal times, would you think about further rationalizing your cost base and optimizing our mix across your various mills or machines. That's the first question.

And then the second question is just a follow-up on the inventory write-down. Maybe I'm just being silly here, but I thought the SEK310 million impairment, is it not we should assume that doesn't happen in the third quarter, so we see a positive SEK310 million and then a minus SEK50 million for further inventory write-downs, I probably just misunderstanding. Thank you.

Christoph Michalski

Okay. Let me start. Thanks, Cole. Okay. Yes. So the - so as I said before, what we are trying to do is in Europe, but we do the same now in the U.S. as well, is that we treat our mills more and more, as a system, where we try to optimize production capability by mill and basically look at the massive system. And what we see today is that this is working very well.

So for example, we took in the - in these two quarters, more curtailment in say, Frovi, and we prioritized KM7 and Gruvon for the production because the production margin, production costs are lower. And we did the same in the North America, where we have some capabilities in Quinnesec, which are similar to those in Escanaba and then we prioritize Quinnesec. And therefore, yes, we optimize quite a bit.

When it comes to overall sites, all the sites today are still profitable, so there is basically not a discussion of footprint when it comes to mill level. However, clearly, as you know, there are always machines here and there, which are basically less profitable and more profitable or need significant CapEx investment. And then the question is always, should we continue with them or should we shut them down, and that's a continuous process.

I think what you have seen, what Ivar is also mentioning this optimization, this TME improvement and efficiency improvement also goes clearly when it comes to machinery. So that's an ongoing process.

But when it comes to mill closures or things like that today, we do not have basically a good argument to close a mill because they're all cash positive. And if demand comes back then this capacity is absolutely needed. Do you want to take the -

Ivar Vatne

Yes. No, on the second one. So no, I can - I'll just try to - well, repeat what I mentioned earlier that listen we wrote-off the inventory valuation, both last year in Q2. We also wrote it off in Q1. given that the prices were still moving up. And clearly now, the prices are coming down. And keep in mind this inventory items or stuff we put on the balance sheet, right, so there will be balance sheet items flowing into the P&L.

So in that sense, the impact now is pretty big in the quarter, given we had a trend shift, and it is the SEK300 million roughly Q2 versus Q1. And given now the trend continues a bit further down, we do expect just a smaller impact going into Q3 and Q2. So this should be around, yes, the SEK50 million additional in Q3 versus Q2.

Cole Hathorn

Thank you. And then just as a follow-up. Christoph, you gave some good color around containerboard effectively stabilizing and seeing mostly the destock ending on that market. Could you give a little bit more color around the sack and kraft, where you think we are in the destocking cycle there? Thank you.

Christoph Michalski

Cole, one second. So sack and kraft has still some weaker demand. I think on the white sack - no sorry, on MG, we are doing better than on MF at this stage, but we see also some price volatility. So I think when you look at the segment, we do not believe that we will have very significantly uptick before the end of the year because of basically stocks in the system and the weak demand that we are facing.

Cole Hathorn

Thank you.

Operator

Thank you. We will now take our final question. Please standby. Our final question comes from the line of Andrew Jones of UBS. Please go ahead. Your line is open.

Andrew Jones

Hi, gents. Thanks for taking the questions. I just got a couple. I'll ask the first one. First one, I'll come to specific you answer that. Just on the project in North America, it seems obviously, you're sort of delaying that or this the delaying decisions slightly and that's understandable. But how are you seeing the market changing in light of, obviously, recent volume weakness? And then, if we look out on the - in the medium term, how do you see the sort of supply and demand balancing up given obviously, we've got fairly large, planned capacity additions from yourselves, if this happens, Sappie, GPK coupled with the fact that Stora and Mets are obviously building large machines in Europe and planning to export to the U.S. I mean do you see capacity coming out to balance that? Do you see growth rates, demand growth rates sort of accommodating all that volume?

And in light of the weakness, we've seen in demand this year, how does that change your medium-term assumptions relative to when you were potentially initially thinking about this project? I mean, can you just talk us through how the market evolves in the medium term, as far as you see things today? And I've got another question, but I'll ask afterwards.

Christoph Michalski

Okay. So I think we have to - to have two separate views on graphic paper and then clearly on cartonboard. So let me start with graphic paper. So I think in graphic paper, we don't see significant trend shifts in the U.S. It's a declining market, and it will continue to decline. We don't know where the bottom is, but probably we are not there yet. However, we see in some of the segments of graphic paper, some very interesting opportunities, and these are all in the premium segments of catalogs. It's in direct mail. It's in books, in certain schoolbooks that we are supplying, and there, we see good opportunity.

And as you know, we have clearly with Quinnesec, the last man standing and an extremely good cost base to be able to compete, and there will be many other machines, which will stop before Quinnesec and to some extent, who is the second-best mill in North America, Escanaba. And why are they so effective? For both, clearly, we have a very good access to a very competitive wood basket. And then for Quinnesec on top of that, it's an incredibly efficient mill. So I think there is absolutely no challenge on that front.

So do we see a future in the graphic market in terms of would we invest more in graphic? No. That is not the strategy. The strategy is to take these assets, of which one is excellent in Quinnesec and convert the other assets, as we go along into cartonboard. And do we have a different perspective of cartonboard than, say, a year ago? Absolutely not. We see a long-term trend of growth in the cartonboard market. We see an incredibly opportunity to convert the U.S. cartonboard market much more into FBB. So we will offer a different product in the U.S. markets and the current mainstream.

And on top of that, compared say, the other machines, which are currently invested in Europe, our cost position when it comes to logistics, fiber basket and closeness to key markets is unbeatable. So strategically, there's absolutely no reason to think that we're on the wrong way. I think we are absolutely on the right way.

When you have cyclical weakness like we have today, and I think today's situation has never been seen in the industry that we had such a peak in 2022 and now such a trough in 2023. And therefore, I think these short-term movements are difficult, as I said, navigate a very difficult environment. But we don't see that as a new normal either, as much as we said last year, this is not the new normal at the high level either.

So I think the market will go back to its normal trend line with some ups and downs in the cyclicality, but we see great opportunity in the North American cartonboard market, and I think our strategy is exactly on the - in the right spot.

Andrew Jones

Okay. And then just to clarify, what sort of growth rate are you expecting on a sort of CAGR over the next sort of five years or so in the U.S.?

Christoph Michalski

So the CAGR assumption that we have taken for cartonboard market is between 1% and 2% in the U.S. And if you look at today, so I think the market is about 7 million tons around. You need - you basically need new machines coming into this market to absorb that growth. And you have also a relatively old machine park in the U.S. And if you look then at our fiber basket, at our proximity, et cetera, even U.S. competitors would find it difficult to copy our situation and our both mills in the Upper Peninsula will be very competitive.

Andrew Jones

Okay. So it doesn't sound like there's any lack of commitment to the project. It's just a case of you're taking more time to do the engineering and copy it.

Christoph Michalski

Yes. Yes. Absolutely. Yes. And I think we have to be very clear. I think we have a history, where with KM7, as many of you have pointed out that the project was not as well managed as it should. And the whole learning is when you do these projects, you have to be incredibly well prepared, you have to be very thorough with your planning analysis and then implementation. And we will not start this project if we have not achieved the planning excellence and planning quality, which is necessary to deliver this project on a flawless execution.

Andrew Jones

Okay. And just a final question on the 3Q versus 2Q bridge. I mean, we talked about a few of the moving parts, so cost savings, SEK120 million, prices down SEK130 million in the end products, SEK120 million in pulp, we have SEK100 million less maintenance.

Just on the other moving parts, the volume outlook, you say weak demand is expected to continue and you're not really expecting a big take up before later in the year. I mean, when we say weaker - weak demand is expected to continue, are we seeing it being sort of flat on 2Q? Are we seeing it sort of falling further with a bit of seasonality or what sort of volume bridge into 3Q, as you sort of see it today?

Christoph Michalski

Do you want to take that Ivar or -

Ivar Vatne

Yes. And just to be clear, you mentioned Q3 versus Q2, right?

Andrew Jones

No. I'm saying 3Q, this current quarter versus 2Q. Like I'm just trying to bridge from the numbers we've just seen to the next quarter?

Ivar Vatne

Yes. No, I mean. I think volume, we did actually mention it. I think one previous question that I think underlying for most of the categories, we are not expecting much difference versus what we saw in Q2. There will probably be some extra thousands of tons coming into the North America operation, in particular, since we had quite a bit of idling of the Escanaba mill to perform this cleaning of this blastomycosis activities.

We do expect also then just so we don't double count anything that we guide typically for these maintenance stops. We had SEK400 million of that in Q2, and we have about SEK300 million of that in Q3, part of that is also volume. So yes, you can say that we would get SEK100 million less maintenance costs Q3 versus Q2, and that includes a little bit better volume. But besides those things, I would not, at this stage, count on much more in Q3 versus Q2.

Andrew Jones

Okay. Understood. Thank you very much.

Operator

Thank you. That concludes our Q&A. I will now hand back for closing remarks.

Christoph Michalski

Yes. So thank you very much. I just want to reiterate what we said before for Q3. So we - I think we talk about stable volumes, we talk about relatively weak demand, we talk about probably some price - minor price movement, some mix effect, as we go forward into Q3. And we see in the U.S., clear some improvement sign towards the end of Q3 and Q4. But I think the bulk of the improvement in Europe will only come at the end of Q4 and maybe or even in Q1, 2024.

I would like to thank you to join the call today, and it was a pleasure to have you, and thank you, Ivar. And I would like to wish you an excellent summer, and I'm looking forward to speak to you in Q3 result in October. Thank you.

Operator

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

Ivar Vatne

Yes. Thank you.