Billerud AB (publ) (OTCPK:BLRDY) Q2 2024 Earnings Conference Call July 19, 2024 3:00 AM ET
Company Participants
Lena Schattauer - Head of Investor Relations
Ivar Vatne - Chief Executive Officer
Andrei Kres - Chief Financial Officer
Conference Call Participants
Oskar Lindstrom - Danske Bank
Linus Larsson - SEB
Martin Melbye - ABG
Cole Hathorn - Jefferies
Operator
Good day and thank you for standing by. Welcome to the Billerud Q2 Report 2024 Webcast and Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded.
I would now like to hand the conference over to your first speaker today, Lena Schattauer, Head of Investor Relations. Please go ahead.
Lena Schattauer
Good morning and thank you for joining this conference. The presentation of Billerud's second quarter results will be conducted by our President and CEO, Ivar Vatne; and our CFO, Andrei Kres. After the presentation, it will be possible for participants on the call to ask questions. And with that, I hand over to you, Ivar.
Ivar Vatne
Thank you, Lena, and good morning, everyone. And thanks for joining in on this beautiful summer day at least here in Stockholm. So, we are excited to walk you through some of the highlights of our Q2 which has been a quarter with some very clear positives. So, let's get into the next slide, please.
We're back to net sales growth, and we see this growth coming broad-based across most categories in both regions, which is encouraging to see after fighting market headwinds for some time. Another clear highlight is how we've been able to successfully improve our underlying profit, both versus year ago, and quarter-over-quarter. Key has been a clear and deliberate focus on driving the right mix and proactive price management, and this has enabled us to fully offset input cost inflation. I'm also proud of the continued progress we've done to deliver on our efficiency enhancement program.
And now, speaking about profitability, I want to highlight our region, North America here, delivering 18% EBITDA in a quarter where we also include our maintenance stop; that is something I am very pleased about. It's been a decent maintenance quarter for us with four mills doing their annual shots, but I'm happy to report that all stop have gone well and largely in line with both, time and cost estimates. Lastly, I want to highlight our ability to convert the reported property into cash. Working capital discipline has been a big item for us over the past years, and we see another proof of it this quarter with cash conversion close to 80%, and that's another solid number.
Next slide please, and onto some comments about the market sentiment. In general, we have experienced improved sentiment for most of our categories during the quarter. And our view is that we are operating in a normal to good conditions on average for Billerud. Customers are ordering again, and the destocking we faced during most of 2023 feels like a long time ago. However, we are far from the overheated market we experienced during 2022. There is an uncertainty of how strong the underlying demand really is, and that situation differs by category. But overall, we remain cautiously optimistic that condition will continue to improve going into second half.
For food and drink, our biggest channel by far, we see normal conditions for liquid packaging board, and due to strong conditions for containerboard and our sack and kraft business. Consumption is decent, and stock levels throughout the value chain do not seem to be unusually high. For our printing and publishing channel, we're still coming from a relatively soft situation in the beginning of the year, inventory have come down to more normalized levels, and the upcoming election should fuel more positively going forward. However, we experienced headwind with heavy postage [ph] inflation past years which dampens the market activity, but net-net though, we expect this channel to slightly improve going into Q3.
Consumer luxury has also improved, demand seems to [be okay] [ph] but it is not as strong as what we've seen in containerboard. If we see stable condition going into second half either with rough expectation that we will see an increased demand going into 2025.
And lastly, for our industrial channel, the sack business has improved. We had normal or average plus conditions, pretty good pull in the brown sack business, nothing remarkable, a lot of effort into driving profitable mix. For white sack, Northern Europe is quite weak while we see good pull in the -- for the Southern Europe geography. But overall, we believe our sack business will meet stable condition into the Q3.
So, with that, I hand it over to Andrei.
Andrei Kres
Thank you, Ivar and good morning, everyone. Let's start by looking into net sales which increased by 8% compared to last year, and that was largely driven by volume and mix improvement, which was the case for both regions. Our total pricing impact was still negative with only pulp and liquid packaging board segments which showed year-over-year price increases. And as we previously pointed out, we have announced several price increases for our European segments in both, quarter one and quarter two this year, and we see sizeable sequential improvements which offset the cost inflation in the quarter. And we will continue with our pricing efforts, also heading into quarter three, and expect pricing to further improve into the third quarter.
Next slide, please. Moving over to profitability development and also here higher volume and improved mix were the main drivers behind profitability uplift. Raw materials and logistics costs were more or less flat, and although the pulpwood costs in the Nordics were significantly higher compared to last year, other broad-based cost declines more than offset the pulpwood cost impact. And we had yet another strong contribution from our efficiency enhancement program, with a total impact of SEK190 million, and inventory evaluation had also significant positive year-over-year impact, just south of SEK210 million, and that impact was also positive sequentially versus quarter one with SEK150 million.
Now moving over to the regions, and starting by region Europe. So, the region continued to have a solid order books and also positive market momentum in most of the segments. Price increases were implemented for second craft segments and also container board; and these price increases fully offset sequentially higher input costs. Profitability for the region improved significantly versus last year to a margin of 9% in EBITDA terms. And in quarter two, as Ivar mentioned, we executed several maintenance shutdowns. For region Europe, this had a total EBITDA impact of SEK400 million; so clearly, underlying profitability for the region is improving also compared to the previous quarter.
Sales volumes for the region were up 6% versus last year, but down 5% sequentially versus quarter one and we expect the volume to be more or less flat heading into quarter three. All-in-all, this was a positive development for the region with clear pricing improvement which offset the pulpwood cost increase.
Now, looking into the cost development for the region, next slide please. As we expected and also talked about the pulpwood, prices continued to increase in the quarter and also reached all-time high levels. The total impact from pulpwood cost increases versus quarter one was SEK120 million. And also costs for purchased pulp increased and added SEK60 million versus quarter one. Cost for chemicals were up SEK10 million, and logistics SEK40 million. Seasonally lower energy costs had a positive impact of SEK100 million. So, all-in-all, we had a cost headwind of SEK130 million versus first quarter this year, which again was fully offset by price increases performed during the quarter.
Heading now into quarter three; we expect additional cost headwind in the region of SEK180 million, where SEK140 million is from pulpwood and remaining SEK40 million is from purchased pulp. Other cost items we expect to remain stable, and also for quarter three we expect further price increases to fully offset the cost headwinds.
Now heading to region North America, next slide, please. Our North American region saw clearly more positive market sentiment, in particular for specialty paper during quarter two. Volumes increased by 14% versus year ago and by 4% sequentially. The region continued to operate below 70% in operating rates but delivered excellent profitability with EBITDA margin of 18%. Profitability for the region was impacted by SEK120 million in maintenance shutdown costs at our [indiscernible] mill; so underlying profitability for the region is remaining very strong despite far from full capacity utilization. And heading into quarter three, we expect further positive pricing impact from pulp prices and also slightly improved volumes.
Next slide, please. Also a couple of words on cost situation for North America, which again is very different from Europe. As we expected, the input costs remained stable in the quarter, and although we did have seasonally slightly higher pulpwood cost, that impact was offset by minor declines in other input costs; so all in all very flat development. And we expect costs to marginally decrease into quarter three but again, very minor movements, and we're talking about tailwind in the region of SEK10 million.
Next slide, please. Looking into cash flow development, and as Ivar mentioned, we had a solid cash conversion in the quarter. The cash flow in absolute terms improved significantly versus year ago, and also sequentially. Operating cash flow conversion was at 77% for the quarter. We maintained our working capital position despite sequentially higher sales. Our leverage was up versus year ago at 1.6 times EBITDA but we improved our leverage position compared to quarter one from 1.9 times despite dividend payout of SEK500 million in this quarter. Our capital expenditures for the first half year amounted to SEK1.3 billion, and we will have additional SEK1 billion in base CapEx for reminder of the year. So all in all, our CapEx guidance of SEK2.3 billion for this year is unchanged.
And now, handing back to Ivar.
Ivar Vatne
Thank you, Andrei. We keep the focus on our efficiency enhancement program, and we're adding another SEK190 million to the program for the quarter. And I'm both, happy and proud to see the progress we made, and we are ahead of the ambition since we launched this company-wide priority aid in multiple [ph]. And as we tend to do in this grey shaded box towards the end of the slide, you can see some real examples of initiative that have contributed to the program during the quarter, and the risk of activities we go after throughout the company. And for 2024 in total, we are well on-track to deliver a target of SEK700 million.
Next slide, please. So over to North America; and I'm sure most of you aware of the new direction of moving our product mix towards packaging material. This is something announced and talked about end of May; we have a well-represented and multi-functional team in place to work through the planned details depending [ph] what grades do we expect to start with, and how the sequential plan will look like, and not least, some clear indication on what investment level this will require. This work is progressing well, and we do expect to share a more comprehensive plan in a Capital Market Day. We haven’t locked in a day for the CMD yet; we do expect this to take place in the back half of Q4. And we will obviously share the details as soon as we have them ready.
Next slide, please. The company priorities for 2024 remain more or less unchanged from what I've shared earlier in the year. Number one is the continued work of our strategic investment project. We have a change of scope in the US, as I just talked about, and we are in the waiting mode for our [indiscernible] where we do expect to get some news on the environmental permit during second half. For Europe, we are adapting to a high cost situation on fiber and securing cost competitive wood supply, and it will remain high in our priority list for the foreseeable future. And lastly, fuel the momentum of efficiency enhancement program going into second half and finish 2024 off in a good manner.
So next slide, please. So to round it up, a couple of comments laid out for Q3; market sentiment has turned more positive during the first half of 2024, and we do expect this to slightly improve going into Q3. Input cost inflation is something we will continue to fight, first and foremost in our region Europe. Hence, we will continue our strong focus on driving pricing and mix improvements. And as Andrei mentioned, we do expect in Q3 on total for the company to be able to offset increased input cost to pricing and mix.
So with that, I hand it back to operator for our Q&A.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] And your first question today comes from the line of [indiscernible]. Please go ahead.
Unidentified Analyst
All right. Thanks, operator. Good morning, everyone. Just a few follow-ups from my side on how you see the guidance into Q3 -- just to see if I interpreted in the right way here for volumes; so more or less flat volumes for Europe into Q3 and US a little bit higher. And when it comes to costs, SEK180 million increased costs in Europe, and SEK10 million that was the cost of US. And then on prices, you say that you expect prices to offset; so we should expect prices in Europe and North America realize to be up 2% to 3% [ph] or how do you see it in Q3 versus Q2?
Andrei Kres
Good morning, Christian [ph]. So on the cost side, you were correct in SEK180 million in Europe, and the tailwinds of approximately SEK10 million in North America. On the pricing, we do expect to increase prices for our European paper and board segments with 2% to 3%. And if we look at the North America, we expect more or less total flat pricing development with some increases within pulp, but we will also have some worsened mix due to more pulp production.
Unidentified Analyst
All right. So the mix -- the mix -- so Andrei, you included the mix -- the European price outlook, that was all including mix effect. That’s correct [ph]?
Andrei Kres
So we have 2% to 3% that we expect for the paper and board segments, and also increase in pulp prices.
Unidentified Analyst
So that's including potential mix?
Andrei Kres
Yes.
Unidentified Analyst
Mix changes we get as well?
Andrei Kres
Yes.
Unidentified Analyst
Okay. Excellent, Andrei. Thank you very much.
Operator
Thank you. We will now take the next question. And the question comes from the line of Ravi [ph] from Citigroup. Please go ahead.
Unidentified Analyst
Thank you. You made an 18% EBITDA margin in the US, even with less than 70% operating rate. So sort of three follow-ups on that point. One, can you give us a sense of what kind of utilization rates are you budgeting there for the second half? Secondly, what's the kind of operating leverage you can expect; let's say a 10 percentage point increase in operating rates in the US? And third, you are also calling out very strong net sales growth fuelled by volume in North America, yet low operating rate. Does this mean that there was a lot of sales from inventory in this quarter in North America? And the reason for these questions is that we don't have a huge amount of track record with the former Verso asset, so just trying to figure out how 70% operating rates can lead to such high margins.
Ivar Vatne
Good morning. Its fair questions. No, listen, I think we probably expect to get slightly above the 70% threshold going into -- at least Q3. As Andrei mentioned, we do expect to get some more volume, first and foremost on graphic. We are pretty much fully booked on speciality, so there's nothing really much there. But it is no doubt that we do not expect to reach 80%, 90% utilization, at least for this second half of the year. And all indication indicates that we are not going to see that either going into 2025. And this is very much the core of our -- call it strategy or what we want to do in the US where these two -- well, graphic segments we are operating in and call it free sheet and call it ground good [ph]; they are on a pretty heavy annual decline year by year, just because of consumption is coming down. And we will need to start adding more volume into other paper bulk [ph] rates. So that is something we will come back to.
So if I try to summarize it, we are pretty careful to assume that we will fill the machines right now on the portfolio. But we will start adding more volume and share those details and CMD [ph], and hopefully then you will see that we have some good plans to get to higher utilization down the line. But that will be a gradual program starting in 2025, and probably it will move towards 2030. I think the last point if I got to you right in terms of our net sales per ton [ph]; no, I do not at all go and say we have a lot of old inventory we got rid of. That's not the case at all; that was pretty clean situation that we had. It's just literally been mixed between the grids; we had a bit lower pulp sale for this quarter, also because [indiscernible] was having the maintenance shut and that’s the biggest pulp producer we have in our assets over there. And also specialty went well.
Operator
Thank you. Your next question comes from the line of Lars Shelby [ph] from Stifel. Please go ahead.
Unidentified Analyst
Thank you. Just a couple of questions from my side. When you're looking at the different performance between the different segments and describe container board being strong and consumer board okay-ish; what do you describe that difference to? Are you still seeing some destocking on your customer side on the consumer board side? While, of course, container board -- that already seems to be done. And also if we could allude to -- if you expect on the side of inventory revaluation to benefit the third quarter and second half numbers? Just to get some clarity on that. And on final point, I guess you -- I understand, of course, you're going to share more details in the North American situation but it's equally interesting to see the profitability which seems to have structurally so much changed relative to what it used to be in coded papers. So is it really worthwhile taking a risk to adding supply into somewhat crowded packaging market in the US when encoded paper business is doing as well as it is? Why not just milk the assets?
Ivar Vatne
I will start it off, and I think Andrei will help on the second point. No, but listen, I think just a couple of comments; I'll just make some general and try to also tie back to your question. But isn't for container board for us -- I mean, market is still strong, especially on fluiding [ph]. And there is certainly more pull off on the volume side but several pricing waves in the industry which is coming through, and the whole market is moving. It’s quite a lot helped by also the pressure that is seen on recycle container board. And there is no secret that pretty much everyone, in particular, in Europe is feeling this input cost inflation, which is first and foremost, going back to the fiber cost. And that pricing corridor between virgin container and recycled is certainly also something that get a little bit of tailwind. We see customer inventories are in good levels, underlying consumption feels good; us in particular, fruit and vegetable is the channel that we are heavily exposed to and that seems to be in good shape.
And I think on carton board [ph]; listen, it is a big different situation. It's quite a lot of volume out there and supply, and in particular overseas, it's no doubt that part of the consumption -- if you look at some of the categories are exposed too with electronics and luxury and some of the more finer categories; that consumption is under pressure. I think it's fair to say that interest level which has been taking a toll in most markets has influenced this. So this is also a little bit to my comment earlier on that -- now that we start to see signs that interest level will start to easing up. We have at least some cautious optimism to believe that consumption will start also in carton board [ph] but that's more later in the year, and maybe more into 2025 if anything else.
Andrei, you want to take the second point?
Andrei Kres
Good morning, Lars [ph]. Yes. So on the inventory revaluation, I mean, normalized level would be somewhere between zero and SEK50 million, that we would expect come in the quarterly impact. Now heading into quarter three; we do expect that to be a positive effect due to increase in the input cost. And this is what we would look for at this point.
Ivar Vatne
And listen, last point on your third -- it's not an unreasonable comment. I can say that for me, I love graphic paper, and we will be in that category for quite some time; and that's certainly something that we will still have as a big part of our identity North America way into the authorities [ph]. Having said that, there is just no doubt that there is a pretty heavy -- and we call it sector decline in those categories. Yes, the EU still is the market with SEK400 million plus, but we see the same trend as Europe has, maybe being a bit earlier on. And there will be a challenge to fill those mills at a good level in the long-term with that exposure. So we will need to supplement that we are not going to do anything stupid or we have a very good connection dialog with our customers on graphic. We want to be the preferred supplier, we are wonderfully located in Midwest US and established fantastic relations so for many decades, and also will keep [ph].
But then again, gradually starting to put more of paperboard where we are good in Europe, this is where we have the know-how, we have the -- we called it widespread expertise to draw on. So we think actually we will have a very exciting US plan now with this more evolution approach than maybe the more revolution that we initially had plans.
Operator
Thank you. Your next question comes from the line of Oskar Lindstrom from Danske Bank. Please go ahead.
Oskar Lindstrom
Good morning and congratulations on a very good result. Two questions from my side. One, sort of focusing on Q2, and especially in North America where you saw that very good underlying earnings improvement. Could you perhaps explain a little bit more about how this was possible with continued -- you know, relatively weak volumes and capacity utilization. What -- was it only price or -- I can't quite bridge that, but maybe you could provide a little bit more details there? That's my first question.
Ivar Vatne
Can we just get the second as well? And we will have the answer.
Oskar Lindstrom
Sure. So my second question is more long-term and looking at your financial target for at least 17% EBITDA margin. I mean, you're now achieving 9% margin in a quarter that you describe as, quite -- where market conditions were normal in most of your segments. So what are the building blocks really to reach that 17% which is quite a jump from where you are now? Is it enough to just sort of go for price increases or are there also more structural changes needed? That's my second question.
Ivar Vatne
Yes, good. So Andrei will start the first and I'll tag on to the second.
Andrei Kres
Good morning, Oskar. So, on the profitability in North America; I think if you look sequentially versus quarter one, we did have some volume uptake, which is obviously one of the explanations to the improved result. We had also quite significant mix effect with lower out sales [ph] as we carried out the maintenance shut down in [indiscernible], and that's where we fell a last part during the maintenance shutdown. We had also quite significant help from lower fixed costs overall in North America, with a very conscious focus on the fixed cost level. And those I would say were the main drivers for the profitability uplift here.
Ivar Vatne
Yes. And listen; if I go into the second one, it’s a good point, Oskar. And let me say the following on that, you are absolutely right, this quarter has been certainly better and it's a bit more normalized. Very -- I just want to remind all of you, but I'm sure you have that on your radar; you know, 9% EBITDA, it is very heavy maintenance cost. If you strip that out, and then you are at 14%; now it is also true that over a year some quarters will need to carry that, so we cannot completely exclude but it gives an indication that this is a nice step-up from what we’re seeing for the last four or five quarters. But I think on this financial target, this is certainly something we have on our mind. It will be a very natural topic when we have the CMD towards the end of the year; we are a different company now than we were at the time when we met last time, not least, with the US now on board. And we will take this into account; I mean just in terms of our capital allocation details going forward, that will be a big topic when we meet.
And certainly, things have changed in Europe now but I can say that given how we look at the fiber [ph] situation where we don't see this is a short-term spike in going up; this is now a bit more the new normal we need to operate within. We have to do more ourselves, okay. So we need to do better, we need to be slimmer, we need to be lean and mean, and we have always opportunity to just challenge ourselves; if our cost base is right, and we need to do further adjustments on the costume, but you cannot sell -- save yourself the glory in this situation. So price and mix management is just instrumental; and that means we will have to take further tough positions in value over volume; that is a very big mantra for me now in this situation. And I think US is a very good example of this, running below 17% but having a phenomenal value mentality; you see the numbers for yourself. And it's not unreasonable that this is something that we’re going to drive hard also in Europe going forward.
Oskar Lindstrom
Right. Thank you. I'll look forward to that year-end Capital Market Day.
Operator
Thank you. We will now take the next question. And the next question comes from the line of Linus Larsson from SEB. Please go ahead.
Linus Larsson
Thank you. And a good day to everyone. Could you just drill down a bit more on price and mix which surprised me quite the best in the quarter, and I would guess it surprised you as well. So, you saw an acceleration here of -- I mean, price mix was up more than 6% in both, North America and Europe sequentially. A strong acceleration actually from the first quarter, and now you're talking about an abating pace in Q3 from Q2. So is this largely mix driven the surprise or what is really behind those big figures here?
Ivar Vatne
Good morning, Linus. So in terms of development sequentially here into quarter two; I think if you look at our net sales performance, and as you mentioned 6%, you could split those in roughly equal parts of 2% pricing, 2% mixed, and also 2% FX, we did have some significant impact from the FX quarter-on-quarter. We also did make quite significant moves in terms of improving our mix, primarily within Europe. And we should also bear in mind that quarter one; we delivered all-time high volumes within liquid packaging board. Now we're probably on the margin, delivered more of the paper grades which improves the total net sales. And now heading into quarter three, we do expect the mix effect to be much lower but what we guide for is to a large extent, and then pricing effect.
Linus Larsson
Great, that's very helpful. So what we're seeing Q3 on Q2 is largely price, and we shouldn't expect mix and FX to have an impact really?
Ivar Vatne
Not at this point in time. I mean, as we see it, it's to a large extent going to the price.
Linus Larsson
And that figure, would you -- you talked about it earlier on the call. What's that? Is it -- you say you will offset the cost but will you more than offset cost? Or are you willing to go into more detail on that?
Ivar Vatne
Now as we see it right now, I talked about the cost headwind of approximately SEK180 million for Europe and tailwind in North America. If we look at the pricing into quarter three, we will expect additional SEK200 million; so slightly more than offsetting the input costs.
Linus Larsson
Great. And that's mainly in Europe but also in North America?
Ivar Vatne
That's mainly in Europe, yes.
Linus Larsson
Perfect. That's very helpful. Thanks a lot. And then, would you mention that the one-off in Carlsberg [ph], this fire -- and you mentioned SEK50 million impact. How should we think about that in the third quarter? Is that coming back fully or partly or what's the bridge there?
Ivar Vatne
No. So that SEK50 million we had in the earnings impact in quarter two was -- essentially half of it was volume, and half of it was increased cost to repair the damages. Heading into quarter three, we don't expect any material impact from that incident.
Linus Larsson
Perfect. Good stuff. And then just maybe -- finally, maybe it's early days, but on the uncoasted liner [ph] trials that you've made in North America, what's your time plan on that? I mean, that's something that is connected to commercial production. Would it require some minor CapEx or what would it take to make this into a significant part of your business?
Ivar Vatne
Yes, no, I can take that one. But I can just confirm that this encoded line of proposition that we piloted in North America, it has exceeded our expectations. This is a pure hardwood encoded liner which -- to be honest, we don't have that much experience here in Europe; as you know, it's a little bit different split soft and hardwood here. But the property that came back very strong, we had it out with customer for testing. Typically, what you will experience in a stage like this is that some things work really well, while you get some homework to fix certain other things, and that's where we are. So at this stage, we haven't sold anything from commercial but let's just say that very good interest with some of our customers on this, and we do expect relatively shortly to be able to start yet from zero but to get some commercial volume. And that's not unreasonable, that it happens already second half of this year, although that's still not confirmed.
I think when you say that otherwise going to be meaningful position, it's a good question. I think probably I'd like to say that to the notorious CMD we mentioned; that's where we will be probably able to do a bit of more granularity and show you hard light path. But in this particular case, that will not require as it seems right now, any significant additional CapEx on the coded liner [ph].
Linus Larsson
And which machine are we talking about? Which machine will be suitable for this product?
Ivar Vatne
Yes. I mean this test we did now was actually in Quinn [ph], so that is [indiscernible]; no doubt that when we look at also our asset space in Escanaba [ph], there is a good hope that the certainly the E4 machine will be able to do something similar. But as I said, this we’ll talk more about in the end of the year.
Operator
Thank you. Your next question comes from the line of [indiscernible]. Please go ahead.
Unidentified Analyst
Thank you very much and good morning, all. I have a question related to the North American graphic paper market. You're doing quite well there as you alluded to earlier in the call. When I look at the ASP you're generating, it seems to be clearly higher compared to historical average levels years back. So what should we expect to say that the graphic paper market is in the decline in North America, obviously, and the load is not very high? I feel the sales prices are quite good. What should we expect down the road this year and perhaps next year in terms of sales prices of graphic papers in North America?
Ivar Vatne
No, but listen you are absolutely right that the graphic situation of North America has changed over the last couple of years. I think you are aware that a number of mill closures or machine closures have taken place, it's now down pretty much to two locally produced suppliers in North America; we are one of them as you know, and we remain very committed, and we want to keep our very strong added value proposition, and also with short lead time with good regional location of our mills. Pricing are higher, absolutely. We expect the pricing to be flat for the foreseeable future.
Unidentified Analyst
All right, thanks. And then, another one on a different topic. So, output with raw material prices, we have seen quite significant increases in the Scandinavia and I guess all over the world in -- during this year and last year as well. What is the view now? Should we expect the stabilization from -- I understand levels; our prices are still going up into Q3, but from there on what is the best guess from your view related to sort of the price level, Q4, start of next year? Is it the stabilization a pullback or increases? And could you just comment on your view -- I mean there has been a fear that Scandinavian producers of paper board essentially are in the squeeze and structurally in a very tricky position. Yet you can show Q2 and what you comment on Q3 that actually sales price increases more than offset those quite big increases in pulpwood. So, two questions; what is the outlook for pulpwood prices in your view? And what is the outlook for the sort of sales margin in foreseeable future?
Ivar Vatne
I can take the first part, Robin, and good morning. So, I think if you look at the pulpwood prices, I mean our cost headwind into quarter three that I just mentioned previously, that's largely due to the price list changes that have been announced during second part of the second quarter, but also here in the beginning of the third quarter. And there is a lot of uncertainty in the market, so what we know at this point is; Q3 was going to be up for us, but it's continued very tight situation on the market, and it's difficult to say for a longer term, but definitely for Q3 we will see a cost increase.
Andrei Kres
Maybe I can tag along to the second part, and good morning, Robin. I think you're raising a very important point. And you know, our view and our analysis of this is, if you look at the Nordic pulp and paper, which is such a dominant cluster in the whole European packaging and pulp and paper context; that region historically have been successful for numerous reasons. But particularly three things on my head stands out that; we've had good access to long and stable energy pricing, you had ample supply and reasonable priced fiber for foreseeable future, and you also had a soft and hardwood mix that fitted really well to those packaging grades, in particular that requires some special in terms of qualifications and properties. And there is no doubt that maybe two of them, certainly one, fiber that is under pressure; that means that I think you know you are under pressure to start to do some competitiveness than on a global scale. But I think very importantly here is, if you think about that that situation will probably hit differently depending on what category you're exposed to.
So, you know, from my side, it's extremely important that you remain in structurally attractive categories. We need to build in a very good customer and value-add mentality of why that proposition is still adding a good benefit for the customers. But it is the new era, I’ve said that for some time, and you could smell it quite soon after the whole war in Ukraine started, and it's been under the lid a bit with a very soft end of 2022 and 2023, but this reality now is really booming, but we will need to do different things at the same time, as I mentioned. Price and mix proactive management is instrumental. And clearly, we and I think everyone in industry will still need to challenge themselves of -- can we do more better or more for less. And that means further efficiency on the fixed cost and really trying to think differently; it will just be a necessity in this landscape we're currently facing.
Unidentified Analyst
Thank you very much for that. And well done in the quarter.
Operator
Thank you. [Operator Instructions] Your next question comes from the line of Martin Melbye from ABG. Please go ahead.
Martin Melbye
Good morning. Two questions for me. First, a nitty-gritty question. So, the -- in the quarter-over-quarter inventory effect for Q3; where do you see that? And the second question, what is now a good mix? Could you indicate the margin per segment, say on carton board, container board, sack kraft, liquid packaging board; which business would you prefer?
Andrei Kres
Good morning, Martin. And let me take the inventory revaluation first. So, in the quarter -- in the second quarter, we had a positive inventory revaluation of approximately SEK80 million. Heading into quarter three, I mean we expect a normalized level; as I said, it's between -- somewhere between zero and SEK50 million. It's going to be positive, so quarter-over-quarter from the revaluation we will have some negative impact, and it will be in the region of SEK30 million to SEK80 million, maybe.
Ivar Vatne
Good morning, Martin. I can take the second one. Listen, I don't want to comment specifically on profitability per category. I mean, as you know, one thing is what net sales per ton we see between the categories and other thing is what we see on gross margin between the categories. But I think in general, you can say that this quarter on Q2 is a pretty well representation of a -- call it average or a good level of what mix you can expect to see. We did some nice moves towards the end of the year of 2023 and now in Q4. We certainly would not expect to see further improvement at that magnitude as Andrei alluded to. But you know, you would always now try in the landscape we're in where inflation is such a challenge, in particular in Europe. You would just go after everything you can, and you can move the dial; so, it's not necessarily the same answer I shall give in a year, but right now, I think the Q2 is pretty represented and a good balance of the mix that we see, at least short-term.
Martin Melbye
What I was hoping for is that you could give some kind of indication on liquid packaging board which used to be the star, is that average or below or above the rest of the sector or the categories now?
Ivar Vatne
No, I don't want to comment on specific categories. As you know, liquid package is a very important part of our portfolio. It will continue to be so. And this is as far as I would go.
Operator
Thank you. We will now take the next question. And the next question comes from the line of Cole Hathorn from Jefferies. Please go ahead.
Cole Hathorn
Good morning. Thanks for taking my question. And first one is just a clarification; you're talking about the wood costs going up into the third quarter, which is expected. But just to clarify, is that -- during the third quarter did you get incremental list price increases or is this just a lag effect from 2Q coming through? I'm just trying to understand if we're getting something sequential, and we should expect further headwinds into the fourth quarter into 2025? This is the first question.
The second is, I think your comments around the higher wood costs, and the actions that you take there which is volumes, efficiency and effectively pricing. And all your comments on value over volume and pricing up; how do you think about it on a big portfolio level? Do you have in mind to say, right, we just need to price up ahead of costs to 5%, 6% and then we're back at an absolute EBITDA level that we feel comfortable. And you know, how reasonable is that kind of 5% to 6% above cost to kind of get towards the SEK4.5 billion or SEK5 billion EBITDA in Europe? Just to understand your thoughts there on the big picture. Thank you.
Andrei Kres
Good morning, Cole. So let me take the woods cost part. So in terms of the pulp wood costs coming up into quarter three, that's to a large extent the lag effect which is based on the price increases announced during first half of the quarter two. But we also had some price increases late in the second quarter, and also immediately here in the beginning of the third quarter, but those will flow through to a large extent during quarter three.
Ivar Vatne
Good morning, Cole. Maybe I'll take the second. I'll start at this and please correct if you feel you're not getting fully answered. But no, at least, I think maybe and maybe not as mechanical as land [ph]; I mean there is no doubt that given the capital intensive industry we're in, we would need to see EBITDA margins up in the area of what we currently have as long-term target. If not, the whole equation cracks down, and then we look at a return of capital employed which is a massive KPI for us; it’s just not there. And surely, when all kind of indications -- we use our best knowledge, short-term to long-term of what the input cost separation we're in, we just -- we don't need to adjust our mindset from where we used to be in the past. And competition is different also per category. Our market position, our market strength is also different per category. So that clearly put a little bit different kind of flavor of what tools you have to.
But no doubt that I think harder now than maybe in the past, we are willing to leave volume on the table for pricing or value that we see is just not the representative of the situation we are in; that was probably not the extreme case some years ago but now we're going much harder after this. And at the same time, we just need to challenge ourselves. I know I'm repeating myself of what do you really think our fixed cost costume and base should be. And we need to do more for less; we just have to do even better and find new ways of simplifying, automating and trying to just find synergies in house. I mean, all of us just are the menu right now.
Cole Hathorn
And then maybe just thinking about your capital market today in the fourth quarter, is that where we should expect you to lay out your expectations of CapEx over the next number of years for both, North America and how you think about the business? But maybe at that stage will you be in a position where you could talk about what you're going to do with your balance sheet because you did take on an equity raise to do that bigger conversion, and you're not doing the conversion into North America, your net debt EBITDA is below one time. So I'm just wondering how do you think about your balance sheet from here [ph]?
Ivar Vatne
Yes. No, I can confirm this is capital allocation would be a big part on that day, and you would expect to see plans going forward for both of the regions. And as you know, the starting point is very different, our portfolio is different; but you know, we're working towards -- in many ways, the same goal but all of this would be on the agenda when we meet in Q4.
Operator
Thank you. That was our final question for today. I will now hand the call back to Lena for final remarks.
Lena Schattauer
Yes. Well, then we conclude this conference. And as you've heard today, we plan to host the Capital Market Day in the fourth quarter. But before that event we will report our Q3 results on October 24, 2024. So, welcome back then. And goodbye from all of us.
Operator
Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.