Operator: Good day, and thank you for standing by. Welcome to Billerud's Q3 Report 2026 Webcast and Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. 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 welcome to the presentation of Billerud's Q3 results. Our CEO, Ivar Vatne, and our CFO, Andrei Krés, will give you an overview of the results and the highlights of the quarter. After their presentation, conference participants will have the opportunity to ask questions. With that, I hand over to you, Ivar.
Ivar Vatne: Thank you, Lena, and good morning, everyone. Thank you all for listening in to our Billerud update this Thursday morning. There are several highlights to talk about, but it is first and foremost been a quarter where we see progress on the profitability recovery. We continue the positive trend since the beginning of the year. Let's get into it. The next slide, please. Overall, our Q3 result is coming in quite close to our expectations, and we do see progress on several fronts. We return to positive net sales growth, +3% versus year ago and +2% currency neutral. Net sales is also up versus the previous quarter. Our sales growth is coming from increased volumes in both regions, and we have positive pricing momentum for most of our categories. I want to in particular call out our region, Europe, for a strong profitability improvement.
Ivar Vatne: We have been through some tough years in Europe. EBITDA margin for Europe now in Q3 is the highest since the beginning of 2025. Our saving measures on both variable and fixed costs are working, and we have succeeded to increase our competitiveness. For North America, it has been a big quarter in taking the next step in Project Evolution. We have installed some new equipment at our Escanaba mill, which will enable further acceleration towards packaging materials. More about that later. Focusing on converting a high share of our profit into cash remains a clear priority, and we had another excellent quarter in terms of cash conversion, coming in at 127%, which makes our year-to-date position very strong. Next slide, please.
Ivar Vatne: Our strategic direction to evolve gradually towards packaging materials in North America is of high priority for us, and we reached another milestone now during Q3. In combination with the annual shut in Escanaba, we upgraded some of the assets, specifically with the changes on roll handling, roll wrap, winders, and sheet dewatering elements. This has been needed to enable further capabilities to produce heavy basis weight versus what we historically have focused on. With that, complement the customer offering we dimensioned that are more in the sweet spot within the packaging material space. Commercially, we are continuing to pick up speed and record another record sales quarter during Q3, and we would expect that we exceed that number also for Q4. Now, over to some comments around market sentiments on next slide, please.
Ivar Vatne: If I start with North America, the market conditions remain favorable, quite stable. Inflation has been a big topic, particularly fuel prices, but besides that, the consumer sentiment is still quite good, and our order books are solid for Q4. In Europe, the market sentiment improved a bit during Q3. Now it is mostly supply-driven and fueled by energy price hikes on continental Europe, and that triggers positive pricing momentum across the sector. Consumer demand is still relatively muted, but a bit improved versus how we started the year. There are big differences between categories and channels. Food and beverages and industrial are starting to normalize with pretty good demand, while luxury is still weak. For Asia and rest of the world, the situation has also improved a bit.
Ivar Vatne: Food and beverage had continued strong performance during 2026, also within the industrial channel where our exposure is mostly within sack. The sentiment has strengthened during the quarter and is solid. With that, I hand it over to Andrei.
Andrei Krés: Thank you, Ivar, and good morning, everyone. As Ivar mentioned, we are back to top-line growth, which is driven by positive volume development in both regions. Europe was standing for the majority of the increase with 5% volume growth, while North America recorded 2% volume increase. The total pricing remains negative, but is a quite mixed bag here, with all categories in North America up versus a year ago, while Europe is still behind. Next slide, please. EBITDA was more or less flat versus a year ago, as most of the headwinds were offset by our cost-saving initiatives and volume recovery. Raw material cost development is positive versus last year, largely driven by Nordic pulpwood costs. We do see higher costs for logistics compared to same period last year, and that is, of course, driven by higher fuel prices that we see now.
Andrei Krés: Margin of 10% is another solid improvement versus weak start we had in 2026. Sequentially, EBITDA is up more than 50%, and right now it is our region Europe that is driving the sequential improvement. Our successful cost-saving program is, of course, an important building block and is continuing on track to deliver SEK 550 million in cost savings this year. Further activities and impact also into 2027. Next slide, please. Some more words on region Europe. Continued positive momentum on pricing and our cost savings program were the main drivers to recover profitability in the quarter. Volumes were up 7% sequentially, and the improvement was particularly strong in containerboard and sack categories. Pulpwood costs continued to decline sequentially, and we now expect current level to persist into the Q4.
Andrei Krés: Q3 was quite maintenance heavy with annual shuts at three mills, and for the Q4, we will only finish off the Frövi shutdown, which will be the last one for this year. So maintenance-related costs will come down in Q4, but we will have, as usual, seasonally higher fixed costs compared to the Q3. Heading into the Q4, we see continued pricing opportunities within some categories where we see a bit better demand, and we also expect to selectively implement price increases during the quarter. Now, moving over to region North America. Next slide, please. North America had a solid quarter with a 15% EBITDA margin. Now, we did encounter some operational challenges in connection with the Escanaba shutdown and also ramp-up of our packaging materials. But despite that, we managed to maintain stable deliveries to our customers sequentially.
Andrei Krés: Order books remained strong across all paper grades, and this clearly also supports our operating rates, which have now been above 90% for a second quarter in a row. Cost inflation is a clear theme for the region, primarily through higher fuel prices, and we are offsetting that with both price increases and surcharges to our customers. For the Q4, we expect the market conditions to remain solid. Also in North America, we are now out of the maintenance shutdown period. Next slide, please. Some words on cost development in the Q3. In Europe, we had a sequential cost relief of about SEK 20 million. That was driven by lower pulpwood and logistics costs, which were offset by higher chemical prices. In North America, we saw some headwinds from energy, chemicals and logistics, with an overall negative impact of around SEK 20 million.
Andrei Krés: So all in all, for the group, flat input cost development in Q3 compared to Q2. Next slide, please. For the Q4, we expect input cost headwinds of approximately SEK 60 million, and that is primarily driven by seasonally higher energy costs, i.e., electricity in the Nordics and natural gas in US. Elevated fuel prices will also be a factor, in particular in region North America, where we see impact on both fiber through higher harvesting costs and also logistics. Now as I mentioned earlier, Nordic pulpwood costs have come down as we have expected, and from here we see quite flat development into the Q4. Now finally, energy prices are dominating a lot of the headlines these days, and I would just like to remind that we are well-positioned with integrated assets in both of our regions, and thus high self-sufficiency.
Andrei Krés: We also hedge majority of our energy price exposure quite far out in time. With that, I hand it back to you, Ivar.
Ivar Vatne: Thank you, Andrei. Some comments on cash flow and balance sheet. As mentioned earlier, our cash conversion in Q3 was excellent, and 127% is certainly a number of strength. It also puts our year-to-date cash conversion in a good place. Our balance sheet remains healthy and leverage drops to two now at quarter end. Our CapEx estimate for 2026 is a bit reduced versus early guidance, with some project costs in the US rolled over into 2027. This is first and foremost a timing effect. It means that our current CapEx guidance for 2027 is SEK 2.6 billion, base CapEx SEK 2.1 billion and half a billion related to the last section of Project Evolution North America. Right now, we do not have any further significant strategic CapEx project planned. To round it up, next slide, please.
Ivar Vatne: In closing remarks on outlook for Q4, we do expect relatively stable and unchanged market conditions for both of our regions. We have pricing actions in both our regions, and we would expect this impact to offset cost inflation. After a period of heavy maintenance activity, we will have now less annual shuts in Q4. With that, I hand it back to operator for Q&A.
Operator: Thank you. To ask a question now, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. A moment for first question. Our first question comes from the line of Ashish Khetan from Citigroup. Please go ahead, your line is open.
Ashish Khetan: Good morning, everyone. Thanks for taking my question. I just wanted to ask about the profitability in Europe region. How much of the margin improvement in this quarter is sustainable going into 2027, and what would be the margin level achievable given today's demand environment? Thank you.
Andrei Krés: Good morning, Ashish. I think if you look at the improvement we have seen in Europe, it's obviously, as I mentioned, our cost out initiatives, which is sticky, if I can express it like that. So that's underlying profitability improvement we have in Europe. Then it's of course the price increases that we have implemented throughout the year. Looking at the development into Q4, I mentioned we probably will see additional price increases. For 2027, based on the positive momentum on pricing we have today, we would probably see additional impact also going into 2027.
Ivar Vatne: Yeah, if I can just maybe add one point from my side, just to keep in mind that Q3 in Europe is always impacted by some vacation costs and a bit lower activities. That amount is estimated to SEK 150 million, which will come back in Q4. I just want to add that on top of the comments of Andrei.
Ashish Khetan: Thank you. Thank you so much.
Operator: Thank you. We will now take our next question, and our next question comes from Linus Larsson from SEB. Please go ahead, your line is open.
Linus Larsson: Good morning, gents. Hello, everyone. On a sequential basis, did I hear you right guiding for input cost headwinds of SEK 60 million Q4 on Q3 on a sequential basis? I just want to clarify whether I got that right. Also, on the compensation front, what are you guiding for in terms of price improvement Q4 and Q3?
Andrei Krés: Good morning, Linus. Yes, at this point, we look at headwinds of around SEK 60 million on costs. It is roughly 50/50 split between the two regions. On pricing, at this point, we look at approximately 1% positive pricing development in both regions sequentially. Now, of course, if you look at what is happening on the market and also with the energy prices, a lot of the price increases that have been announced that are now impacting were announced before the worsening situation we are in now within energy. So we expect also that momentum will continue into 2027 and H1, but that we will need to come back to when we have some more Q4 under us, so to speak.
Linus Larsson: Great. Super. Then you talk about operational challenges in your North American operations. Any way you could quantify that for Q3? Has that been resolved, or does that have any sort of impact in Q4 as well?
Ivar Vatne: Yeah. Good morning, Linus. I can take that one. We do not guide really specifically on those items. I can say if you look at some of the historical performance in North America and look now at Q3 and taking out maintenance, it is a little bit lower than you would normally see. We had two events, you can call it, that cost this quarter, and we had a little bit more downtime on the Escanaba mill after our annual shut, that by default should be a one-off. And we had a little bit lower runnability, or you can call it mill efficiency, as part of a ramping of also now the packaging materials. And that we have been worked. It is not fully resolved, but we see progress going already into the first weeks in October.
Ivar Vatne: I would expect us to take another step now in Q4 towards what we historically have seen as good performance in North America.
Linus Larsson: Okay. Cool. Just finally for me, on the volume side of things in Europe, you did pretty well in Q3. Any color on that? What drove that improvement and is there any reason why Q4 is not going to look as good if you look on a year-on-year comparison, for instance?
Andrei Krés: Yes, Linus. I think if we look at the development in Q3, I called out during my earlier comments, in particular, strong deliveries within containerboard and sack. I think if we look towards Q4, we feel that customers are managing or are careful about the inventories. We also see that orders are coming in quite late because there is volume out there. Standing here now in October, we would expect that, as we have seen previous years, that the inventories will be brought down in Q4 to manage the working capital position at our customers. Hence, at this point, our best outlook is that we will see somewhat lower volumes.
Linus Larsson: Sure. No, I was more asking, wondering on a year-on-year basis, but I do not know if you can add anything.
Ivar Vatne: No, I can take it. I do not think there is any specific per se. It has been pretty good momentum going into Q3. We had nice runnability. So there is nothing specific per se that stands out. It is a little bit up versus Q2. As Andrei Krés said, we have strong order books also into Q4, but everything else equal, maybe slightly down just because of customer trying to manage carefully their year-end position. There is nothing else really out to be noted Q3 year-over-year.
Linus Larsson: Cool. Great. Thanks.
Operator: Thank you. We will now proceed to take our next question from the line of Ephrem Ravi from Citigroup. Please ask your question. Your line is open.
Ephrem Ravi: Thank you. Sorry, just a couple of follow-up questions on cost. Firstly, on the logistics side. Of the SEK 60 million sequential cost increases that you are talking about, would it be fair to say that most of it is logistics, given, as if I heard you correctly, most of your energy is hedged? Could you give us a sense of your total kind of absolute logistics cost base, if you can, on a full year basis? Secondly, on the qualitative guidance around the different markets in the different regions, obviously Europe is normalizing. How far or how much below normal would you say Europe is? Is it 10% or 20% or is it two quarters out in your assessment? Thank you.
Andrei Krés: Yes. Good morning, Ephrem. I can start. So in terms of the cost headwinds into Q4, yes, that is primarily logistics. I would say of the SEK 60 million in headwind, roughly two-thirds is logistics. But we will see seasonally higher energy costs as well, and as you know, we are not 100% hedged, so the spot share there will impact also Q4. If you look at the total logistics costs for the group, it is roughly SEK 3.5 billion for both regions per year.
Ivar Vatne: Good morning, I can take the second one. It is a bit of a tough one to answer. I think the sentiment in Europe has taken some steps from low levels from the beginning of the year. The consumer sentiment has been muted for quite a bit of time. You have to probably also go into a bit more specific on channels and categories to give it balance. But, for us, food and beverages is the biggest channel for us in Europe, and that is performing pretty well, with some slight growth in the category. Obviously we have been benefiting from that. Industrial also has been pretty solid, in the sense of Eastern Europe and what we could export out to Africa and Asia. So that has been, in some sense, good. We foresee that will hold certainly into the end of the year.
Ivar Vatne: Luxury is still very weak, and cartonboard in particular is the category which still, I think, is a bit the sick man in Europe in the sense of our packaging space. There is just a lot of capacity out there, and that is where clearly we see the demand is struggling the most.
Ephrem Ravi: Thank you.
Operator: Thank you. As a reminder, before we move to our next question, if you wish to ask your question now, please press star one one on your telephone. That is star one one for questions. Our next question comes from the line of Martin Melbye from Fagernes Malby. Please go ahead, Martin, your line is open.
Martin Melbye: Good morning. When you refer to higher prices going to be announced during the quarter, which segments, which products are we talking about then?
Ivar Vatne: Hi, good morning, Martin. I think it is not very clear, as an answer. I think we can say that on sack, we know there will be price increase coming in from the beginning of 2027. I think if I just spin out on what also Andrei talked about, we know that some of the pricing announcement that has hit us in Q3, they were down at energy levels and especially gas prices in Europe, which was lower than we currently see now. Looking now that if this continues, even speculating if there is a cold winter coming, then I think there is every reason to believe that this will continue. I think that is reasonable to say that both containerboard, and also cartonboard, will be benefiting that on top of our paper grades. Nothing is really announced right now.
Ivar Vatne: But it is just when we look at where the market is trending, we see also some of the drivers that has been helping us so far in Q3. This is our best view.
Martin Melbye: Okay. On energy costs heading into 2027, do you care to give some guidance there?
Andrei Krés: Well, hi, Martin. I can provide some coordinates. If we look at our positions now in terms of hedging, so we have roughly two-thirds of our exposure hedged for 2027. I think as we mentioned, we start to hedge quite early, so 3 years before we enter the year, which means that it is not on the levels we are at now that we are hedging the most of it. So it should actually be pretty stable development year-over-year. We expect to have 80% hedged when we enter the year, and then 20% will be exposed to spot.
Martin Melbye: Okay, and if you were to mark to market the entire portfolio, was that stable, or was that for the hedged part?
Andrei Krés: Sorry, Martin, can you repeat?
Martin Melbye: I think you said stable year-over-year in 2027 despite higher energy costs, or was that just a comment on the hedged part of the portfolio?
Andrei Krés: Yes. Then, of course, the spot exposure that we will have in 2027, yeah, will depend on what energy prices we will have. So I am unable to provide a guidance on that.
Martin Melbye: I see. Excellent. Thank you.
Operator: Thank you. We will now move to our next question, and our next question comes from Cole Hathorn from Jefferies. Please go ahead. Your line is open.
Cole Hathorn: Morning. Thanks for taking my question. I would just like to follow up on the positive volume development in Q3 and how that goes into Q4 for Europe. Am I right in assuming that majority of the positive volumes is containerboard and the kraft paper side, or was there some liquid packaging board volumes? Then when you think into Q4, which is the segments do you think that the customers are managing the working capital? Is it more on the liquid packaging board side? Is the first one. Then I have got a follow-up.
Ivar Vatne: Yeah, I can start and then maybe Andrei has some comments. I think we have seen broad-based pretty strong growth within the region, Europe. Most segments have had a pretty good run. When we look at, and this is not necessarily an answer that fits everyone, but there is, especially for the European customers, pretty much across any category, it is a pretty hard discipline around year-end position. There is a bit more leeway for the volume that goes overseas. There is a little bit longer delivery times at the moment, and trying to source the volume is of high priority. But everything else equal, we had a good run in Q3. Our order books are pretty good. So we would still expect a good volume performance in Q4, but pretty little bit lower just based on typically what we see on customers managing their year-end positions.
Cole Hathorn: Then you called out the CO2 loss of allowances into 2026 and quantified that. You made a comment about 2027 losing something more. Is there any kind of color you can give on lost allowances into 2027, if there is a quantified amount into 2027?
Ivar Vatne: Yeah. Good morning, Cole. I can take that. If we look at 2026 to start with, we lost, as we have communicated, free allowance of emission rights, and that has historically been approximately SEK 0.5 billion of EBITDA impact since we have sold them. Instead, in 2026, we are now subject to carbon tax. That is a headwind of approximately SEK 100 million for us, 2026. Looking into 2027, there is still legislation and decisions to be made by the legislators. Our best, we will not be subject to carbon tax, and we will instead be required to deliver the emission rights. So year over year into 2027, the impact should be pretty neutral because they are more or less the same.
Cole Hathorn: Thank you. You have done well on the CapEx side to make sure that you do not spend too much on CapEx, and you have given your 2027 CapEx guidance. Could you just remind us, firstly on North America, what are the medium-term targets for those kind of packaging volumes between box board and containerboard? Just what you are trying to achieve out to 2030, just so we have that as a reminder. You talk about no major strategic CapEx needs. I remember a while ago there were questions around recovery boiler and placement out in 2030. Anything that we need to think about there on the recovery boiler, or is that still quite far out for you that you do not need to make any investment decisions near term?
Ivar Vatne: Hi, I can take that one, Cole. If I just start in Europe. I mentioned this already, there are no big items planned. We do have a boiler in Gävle that at some point will need to be taken care of. Right now, we are not looking at any decision before 2030. That is the latest data point we have there, but we will continue to monitor. I think in North America, what we said going into 2026 was that we were targeting around 50,000 tons. We probably come a bit lower than that when we close the books, and that is also partly because we had some tight supply situation around the summer and partly had to prioritize some other categories. But we do have a long-term target of reaching 300,000 tons when we come up towards 2030.
Ivar Vatne: For that equation to hold, we are still targeting a pretty aggressive growth also going into 2027 and onwards. This momentum continues. We are getting more customer attention and trials and qualification. But momentum is solid. We can probably come back to that a bit more in detail when we come with our Q4 report for 2027 expectations.
Cole Hathorn: That is helpful. Thank you.
Operator: Thank you. Once again, if you wish to ask a question now, please press star 1 1 on your telephone keypad. That is star 1 1 for questions. We now have a follow-up question from the line of Cole Hathorn from Jefferies. Please go ahead, Cole.
Cole Hathorn: I will take the liberty to ask another one. Ivar, I never asked you this quarter on the views of sack and speciality kraft, considering the market is quite small. Just some color on how it developed on the speciality kraft side, order books and demand, and then similar for the white sacks and the brown sack grades. Thank you.
Ivar Vatne: I can do that, Cole. No problem. I think if I start with sack, it is pretty good positive momentum on both white and brown. There is a positive pricing impact from Q4 onwards on both grades. As Olav mentioned, we are targeting another pricing when we come into the beginning of 2027. Situation Europe is a bit wait and see. There is a lot of last-minute orders.
Ivar Vatne: Construction, where we have our cement bags, is down, while food and bulk, that is up a couple of percentage, and that is mainly the white sack. So situation in Europe, stable to slow. It goes into the same camp. Olav mentioned the customers are afraid to sit on high inventory by year-end. Overseas, it is better. It is quite long lead times. Customers are in a pretty more positive spirit. Strong in Northern and East Africa, LATAM and Asia on brown sack.
Ivar Vatne: Construction sector is actually performing a bit better than we thought some quarters ago. We also have some very good products into there. So we have this QuickFill Plastic Cell. That has been a recent innovation that has been performing extremely well so far. We are really happy. Then more on the speciality paper. There has been pricing coming in from the beginning of the quarter that has held. We are pretty fully booked on all of our MG machines. That is something that we go into Q4. Having said that, it is starting to slow down towards the end of the quarter. We also expect here customers to kind of dial it down towards the end to avoid sitting on too much inventory. It is also here in Europe, orders coming in on short notice.
Ivar Vatne: Interleaving paper in Asia is also dropping now quite heavily towards the end, but pretty okay. We also expect some pickup on medical papers, due to our latest innovation on SteriKraft and PharmaKraft. Honestly, that will also maybe come more credibly when we are into 2027.
Operator: Thank you. Do you have a further question, Cole?
Cole Hathorn: Yes, just one last follow-up on pulpwood. You called out stable into Q4. How should we think about that now? Should we be thinking about wood cost effectively stable from here? Even though index prices may be lower, it is offset by cost to the mill gate with diesel. Just some guidance Q4 and into 2027, how you see wood cost developing.
Ivar Vatne: Yeah, looking at 2026, Cole, I think, our expectation of pulpwood costs coming down has materialized. That has, of course, been supported by the storm volumes that we have seen in mid-Sweden, to some extent, as you say, offset by higher diesel prices. So for Q4, we are pretty sure where we will stand. Looking into 2027, this is probably when we will start seeing impact of the storm volumes being taken care of. So I think for 2027, our best estimate right now will be flat cost, compared to 2026, which means that we are actually expecting that when storm volumes are out, we will have slight increase on prices. But on average, 2027 versus 2026, should be stable at this point.
Cole Hathorn: Thank you.
Operator: Thank you. There are no further questions at this time. I will hand the call back to Lena for closing comments.
Lena Schattauer: So that concludes this conference. Thank you all for your interest and for participating, and welcome back the 2 February when we report our Q4 and year-end results. Thanks and goodbye.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.
