Good day and thank you for standing by. Welcome to the BillerudKorsnäs Q1 Report 2022 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Lena Schattauer. Please go ahead.
Good morning, and welcome to this webcasted conference call following the publication of our interim report for the first quarter, 2022 this morning. My name is Lena Schattauer, and I'm responsible for investor relations. Here is also our President and CEO, Christoph Michalski, and our CFO, Ivar Vatne. As usual, Christoph and Ivar will hold the presentation, and they will take questions after the presentation. Let's get started. Please go ahead, Christoph.
Thank you, Lena. Good morning, ladies and gentlemen. I'm here with Ivar, and we start with a short presentation. Let me give you first of all an introduction. I think this was a very strange quarter. We had the best quarter in our history when it comes to the financial performance. We had probably one of the most difficult operating quarters when it comes to the environment in which we are operating, be it on the production or be it on the sales and logistics and customer service side. We have clearly a very tragic first quarter when you think about the overall environment, in particular the war in the Ukraine. When it comes to the business side, you have seen our results.
Net sales grew by 13%, which was very good, both in Cartonboard and in paper products, very good performance. We have an all-time high EBITDA at 22% margin. Price impact and mix improvement offset all of our cost inflation in the first quarter. This was the first quarter where we basically really fully worked on our strategy, and some of the financial results that you have seen in the quarter are reflecting that. In addition to that, we also had the opportunity to close our Verso acquisition. We closed that on the 31st of March. We signed a memorandum of understanding with our partner, Viken Skog, to explore the opportunity of pulp production in Norway.
These two events, more focused on the strategy, are basically addressing the prioritization about cartonboard, the prioritization about North America and building a very good business there. Our aim to find new sources in wood supply and widen our opportunities to buy both pulp and wood. Overall, very good quarter, very difficult environment in terms of operations. Everything that the war is now basically having an impact on Europe is in addition to what you have seen before with COVID. Logistics has further tightened. Prices of raw materials, in particular chemicals, mainly driven by energy prices, are very significantly on the rise. Wood supply is starting to get expensive because of the closure of the border to Russia.
Ivar will tell you a little bit more in detail on our results and then I will come back to talk to you a little bit about the different projects on the strategic side before we go into Q&A. Ivar, please, over to you.
Thank you, Christoph, and good morning, everyone. Starting with some coordinates on our net sales performance. As Christoph alluded, it's really been an excellent quarter. Double-digit growth and continued the nice trend we've seen for the past quarters. We're up 13% versus year ago and 11% when adjusting for any FX impact. Pricing is by far the biggest building block, and we added more than SEK 300 million or approximately 5% of incremental pricing versus previous quarter, so that's Q4 2021. We do see pricing activity on pretty much all the categories in our portfolio. We also have a sizable help from driving profitable mix, and we really found our stride in optimizing the board grades in particular, and that was one of the main objectives behind our KM7 investment, as many of you remember.
Small negative impact on Beetham, which is now still sitting in our base for some quarters, pulls our comparison down by 2 percentage points. If you look at our categories and where that performance is all about, the growth is coming broad-based. Particularly strong this quarter has been from cartonboard, containerboard, and sack. If we move over to the profitability bridge, I would definitely say it's been a sensational quarter in terms of profit delivery. We have all-time high EBITDA for the company and actually with quite some distance. 22% margin reported, 24% when adjusted for annual stop timing is something that we are extremely pleased with. It continues focus on price management and driving profitable mix that are the two biggest building blocks. We partly talked that already in our net sales bridge.
Probably also one more comment on we're really finding now the rhythm within product area board with portfolio optimization between Gruvön, Gävle, and Frövi. This has been enabled by KM7, and we had a really good quarter across all of the sites. This has been enabled by KM7 in particular, and we are super pleased with the performance this quarter across. We also had another good contribution from our cost and efficiency program. One of the main negative items on the chart is maybe not very surprisingly linked to cost inflation on different items, so SEK 270 million versus year ago. Some details on where that is coming from, logistics, SEK 135 million, chemicals, 100, fiber, 60. On the electricity, it's a slight positive as our hedging was extremely effective in Q1.
To the right, you will find that SEK 80 million of the Gruvön annual stop was recorded in Q1 as the stop started last week of March, and the remaining part will be recorded when we come to Q2. If we move on and some further words about cost inflation and also going forward, this is, I know a very big topic for pretty much all the industries at the moment. Quarter-over-quarter, and that means for us now Q1 versus Q4, the cost inflation was actually quite limited. It's roughly minus 40 million or 40 million cost increase in total. We've seen increases for logistics, SEK 35 million. Chemicals is more up, it's 70. We also seen fiber or the wood purchase starting to move with SEK 35 million.
Most of this has then been offset very effectively through our energy and electricity hedging that has given us a help of approximately SEK 100 million, and that is in Q1 versus Q4. For Q2, the situation will start to accelerate, and we will be hit harder by the cost inflation in Q2. We can pretty much say that with the insights we have on the contracts, we know pretty well how the situation will end. We do expect the quarter-over-quarter, that will be Q2 versus Q1, to land in the area of SEK 250 million. There's two major items, so the biggest item, which is fiber or the wood purchase of SEK 90 million, chemicals of also SEK 90 million, in particular the caustic soda pricing are accelerating hard.
We would see further increases of logistics between SEK 30 million and SEK 40 million, and energy we also expect a minor hit of SEK 10-SEK 50 million, if the current spot prices we've seen now in April will continue. Now, as it also states in the heading, we are looking to offset all of that cost inflation coming our way in Q2 with the incremental pricing and focus on continued profitable mix. We are adding another 40% of incremental pricing in the quarter, so we should have another good quarter in terms of financial delivery when we close our Q2. Moving on to some words on cash flow and some comments around our balance sheet. It's another quarter with positive results, and our excellent EBITDA result is certainly a good starting point.
We've had a bigger working capital hurt this quarter, which is what we've seen over the past quarter. Couple of reasons for that. One is that we have returned our inventory level to a bit more normalized level, including safety stock being on the low side in certain categories. There have also been some phasing on the payables between the quarters, and particularly there were quite some invoices being paid in the beginning of the quarter. At least part of this working capital increase that we've seen now for the quarter are not something we would expect fully going forward. Now one item that has also increased in Q1, and we will expect to continue is on the receivable side, that keeps growing in line with pricing, in particular, any positive momentum.
We probably would expect the r`eceivable balance to keep growing as our net sales is increasing, at least for some more quarters. Net debt to adjusted EBITDA ratio moves to 2.3 post the transaction of Verso. Do keep in mind that that ratio excludes any EBITDA contribution from Verso, so we will certainly expect this ratio to come down over the coming quarters. If we move to the left bottom of this slide, you would get a little bit update on the CapEx outlook for 2022. Here we talk for the time being excluding Verso. Base CapEx relatively unchanged to SEK 1.5 billion. We have done a small adjustment on the Frövi recovery boiler project and moved that up to SEK 1.1 billion.
Please keep in mind that this is purely timing between 2022 and 2023. There is no change to the overall project frame that has been communicated earlier. With that, I hand it back to Christoph.
Okay, the next slide is more of a placeholder. You all know our strategy. On the commercial side, you know that we are focusing on cartonboard. We see that as a major growth engine. We have identified North America as one of the key growth markets. We will pursue all good select opportunities and look at packaging board, and our focus is really on added value when it comes to the sack and kraft market. In operations, just to remind you, organically, we have the opportunity to grow OEE over the next foreseeable future, about 25-26. We'll continue to optimize our footprint and to some extent continue to renovate our current assets.
When it comes to wood supply, as you're aware, with the European Union policies, with the different competitive move in the market, we have a relatively tight wood supply in Scandinavia or, say, Northern Europe in general. A little bit exasperated now with the war in Ukraine. Definitely we also looking to widen our sourcing opportunities for wood. The next few slides are really about bringing the context of what we have achieved on the strategy going forward. Ivar already alluded, we had a very good production quarter across all the. We had a record production in Gjellerud, very good production on KM7 in Gruvön, and also Frövi has performed really well.
That basically this focus on the basics of our strategy is so important for us to deliver now over the next few years, before new capacity with the transformation in the U.S. comes on stream. We were very happy with the acquisition of Verso, and now you have seen the quarterly results, and you have seen the results of the fourth quarter. We believe this acquisition fits our strategy perfectly. They're currently operating in two segments that are not part of our core. We added significant business to BillerudKorsnäs in Graphic paper, Speciality paper, and pulp. Generally speaking, as you can see, the results of the first quarter of Verso, the business is performing really well after many years of restructuring before we bought it.
I think, Ivar, why don't you talk a little bit about the detail on Verso? This is just to give you a glimpse so that you understand what is to come. I think there are always a little bit of skepticism sometimes about our ability to run this transformation. I'm absolutely convinced we will be very successful to conquer the cartonboard market. It is now our intention that we build up significant volumes over time until the conversion is done, and then switch that production to our North American asset. We have already started the conversion work in the sense that we are at the concept stage. We will move into feasibility, and my expectation is that we have a very solid CapEx plan for this transformation in 2023.
By then, we can talk to you in much more detail how that will be executed. Generally speaking, I'm very pleased by how early we could close, and also about the performance in the business as we speak today. We will now continue our integration program. In order to give you visibility, Ivar, please take us a little bit through Verso, which is now called Billerud North America, and you will see that now quarter after quarter flowing into our numbers.
Good. No, I will certainly do so. Thank you, Christoph. We've already mentioned, you see it from the top bullet point, last hours of March, the deal was closed. We're obviously delighted that we're able to get the support from the Verso shareholders and obtain all of the needed regulatory approvals, a bit faster than expected. Given that the closing happened pretty much right before the quarter was closed, there's no P&L impact now in Q1. It certainly will be from Q2 and onwards. Purchase price of $798 million, effective FX rate of 9.26% meant that we landed quite close to 7.4 billion SEK. You know, it's pretty much a debt-free company we're taking over. Strong cash balance of $1.4 billion.
Pretty much the only major debt item that we will take over is the pension liability, and you can see for yourself that is SEK 900 million for the time being. We've worked for some weeks with the purchase price allocation exercise. We have reached what we call a preliminary completion. Analysis has gone well and confirmed to almost the full extent the purchase price consideration meeting the net value of acquired assets and liabilities. We're probably also gonna talk about some potentially small tweaks on that for the coming quarters, but we are in good shape on that exercise in general. In terms of the conversion project, there's not so much new news from what we already talked and communicated. We will be starting up concept studies during Q2 and moving to pre-feasibility second half of the year.
We do expect to be able to bring more details on timing, potential CapEx, financing, et cetera, after the feasibility is reaching its conclusion, and we will be in the beginning of 2023. Right. If we move over to some further coordinates on the Q1, Verso's performance, I mean, not only are we taking over a pretty much debt-free company, it's also profitable and generates cash, which is excellent news. Pretty much as the BK performance for Q1, it has been an excellent quarter also for Verso. Net sales up by 13%, double-digit growth across all categories. Profitability is very strong with pricing and mix driving more than offsetting cost inflation. Now, one comment to the EBITDA result and particularly the 25% you see on the screen, this is per U.S. GAAP.
We do expect when consolidating Verso into BK from Q2 onwards, that this number is typically taken down by three percentage points to comply to the accounting standard we use, which is IFRS. The main difference is mainly related to treatment of pension plan return and handling of some smaller leasing amounts. Please take that into account when doing some kind of comparison on the profitability level as we see it now. In general, extremely pleased with the Verso Q1 performance that was now reported. Right. Moving into some more items on Q2 and probably some coordinates also for the rest of the year. We would expect a very similar story for Verso for Q2, as we have already talked about for BillerudKorsnäs. Continued strong market condition are expected and focus on price management.
Driving the mix would be expected to offset the inflation. If you go into Q3, both sites are planned to have their annual stops or the maintenance stops during the quarter. There are some differences between the sites I'd like to comment on. The Escanaba downtime is pretty close to what we have seen and are seeing in our Nordic-based sites. It's going to be a downtime of eight days and an estimated impact of SEK 180 million, which is again pretty much in line with what we also see in our current sizable Nordic mills. Now, for Quinnesec, this amount probably stands out a bit bigger than maybe at first sight you would expect.
This is what I would explain is a normal annual stop in combination with some of the more significant mill upgrades that have been done since the site was built mid-1980s. At this time for 2022, the paper machine is expected to be down for 14 days, with the recovery boiler planned to be down for 37 days. Some of the key items would include a power infrastructure upgrade, digester top replacement, recovery boiler lower furnace, and different upgrades on the paper machine. This is a bit exceptional in nature, and it's got a pretty big event naturally for Verso for 2022. Going forward into next years, we would expect Quinnesec to have more of a normal seven-ten days downtime schedule as we currently also see in the Nordic.
Another item in Q2 as a one-off, we would expect SEK 150 million one-off negative impact. This is related to the inventory step-up and as a consequence from a PPA analysis. Depreciation going forward, we would expect it to be roughly SEK 200 million from Q2 and onwards. Could be that there are some changes down the line, but we are for now, this is the number that we are guiding on. Then CapEx for the remainder of the year, SEK 700 million is what we expect for Q2 to Q4. That obviously includes the items that are listed under the longer than usual Quinnesec maintenance stop.
A more normalized annual CapEx number for Billerud North America will be in the range of SEK 400 million-SEK 450 million, but we will come back to that when we are getting closer to 2023 and what we expect. With that, I hand it back to Christoph.
Thank you, Ivar. Another very exciting project that we announced during the quarter was basically our memorandum of understanding with Norske Skog. We have worked together for quite some time to understand whether a partnership with Norske Skog could be an alternative for us and also for them, and came to the conclusion that they are sitting in a very good wood basket in the south of Norway. It's relatively close to our Gruvön mill. It's connected by sea, it's connected by rail, and the idea was that we would together build a pulp mill and be at the same time the owner, but also the buyer of that pulp, and in addition to create additional wood flows from Norske Skog into the operation of BillerudKorsnäs. This is a very exciting project.
It's based on the Follum, in the Follum area, and it's the plant that I think was built by Norske Skog about 25, 30 years ago. We see a very good opportunity for relatively low CapEx per ton to develop one of these BCTMP production sites in Norway. The feasibility study is basically ongoing now and will complete in the first half of 2023, by which then we will decide if this project goes ahead. Basically we're negotiating at the same time a joint venture, which will then be born, so to say, with the finalization of the feasibility study. For us, this would mean over time an investment of around SEK 600 million-SEK 800 million. That is to be defined.
In view, if you calculate in CapEx per ton, it's very profitable. As I mentioned to you before, also the same as we do with Billerud North America, there's an opportunity of multiple steps in terms of capacity, and therefore it will allow us a high degree of flexibility going forward. I'm very happy about this, and this is fully in line with our, as I mentioned before, our wood supply strategy to basically widen the sources of wood that we can rely on. Moving forward, a very quick update, I mentioned it in terms of the renovation and improvement of our existing footprint, which is the recovery boiler project in Frövi. Everything is proceeding to plan, despite all the disruption in logistics and raw materials and things like that.
We are very happy. It's hard work to get all the things aligned, but for the moment, we are definitely on time and on budget to deliver to the end of 2023. Good. Having said that, let's go now Outlook Q2. I think Q2 is pretty certain that we will offset with pricing and mix all the cost increases that are coming. That is because, you know, on the price side, you know, we know what's coming. On the cost side, we also know what's coming because we have contracts and things like that. But clearly the situation for the second half is very uncertain. It's not even that I don't tell you what my beliefs are, it's just very hard to predict.
I can give you a little bit of the drivers that we are seeing, which will be balanced out one way or the other. The first one, I think we all believe that raw material will continue to increase, because we don't expect, even if the war was over in the Ukraine now, that the Russian border would be open for wood supplies. The wood scarcity to some extent or the relative scarcity will continue and will have effect on pricing. When you look at energy prices, the same scenario applies. It is very unlikely that the borders for energy will be open from day one, and therefore we continue to expect rising prices for chemicals and all high energy derived raw materials that we use in our production.
The next step is that we still believe that the transport disruption, so logistics, be it just in Europe or also overseas, will continue to be disrupted. You have seen the closure of Shanghai with COVID. COVID has not gone away, so that will be disrupting transport into Asia. You have seen the scarcity of logistics even prior to the war was bad and now it has been even increased with basically Russian transport being banned from European Union, but also a lot of Ukrainian drivers going back home to defend their country.
Then on top of that, you have still the issues that we have faced in quarter one and successfully mastered that sometimes we're not just talking about scarcity and prices, we are actually talking sometimes about inability to deliver certain raw materials which are essential for our production. These challenges, I think, makes a forecast for the second half very, very difficult. Therefore we would like to say to you, "Look, we aim at finishing a very good 2022, but don't take quarter two and quarter one as basically a forward projection of what will come in the second part of the year." What we will continue to do, our priorities are very simple for the coming year and a half, two years.
It is really delivering 2022 as best as we can, and 2023, the same. This is true for the BillerudKorsnäs business in Europe and rest of the world, but also for the business in North America of Billerud North America. The challenges of cost inflation and prices and mix are basically very similar, even if it's in slightly different segments. That is really the bread and butter of our operation. The second part, clearly we have started, is now the integration between the two companies. We are very happy to have kept the majority of the management in North America, who are very experienced and qualified people. This also, as you know, creates a lot of stability with the wider population of our new colleagues who are working in Billerud North America.
Therefore, there's not much disruption by this acquisition in the operations over there, which I think is very good. We will now start to work on systems and consolidation and integration, and as Ivar already mentioned, GAAP versus IFRS and all these type of things. I think by the end of the year, the visible part of that will be achieved. By the end of the year, there will be further integration which are but much more structural like IT, et cetera, which will follow on. The third priority is clearly our transformation project, which we have already mentioned. We go now into concept phase. We go into pre-feasibility. We will have a CapEx by 2023.
Ivar mentioned at the beginning, I think that could be the first half of 2023 because we want to do a good job understanding really the cost. As you know, with the uncertainty around and the war with Russia and Ukraine, we need to make sure that we have all the right estimates for that CapEx and the planning for implementation. At this stage, our intention is still that we have one of the mills up and running in cartonboard, one of the machines, by the end of 2025, beginning of 2026. Good. I think we stop here. As you know, you will now ask question and in one breath give us three in a go.
I would really appreciate you can ask two questions, but please ask them one by one. We answer one, and then you ask another one. That's all fair. Otherwise, it will be difficult for us to remember. I'm very happy to look forward. I'm now looking forward to your questions, and thank you very much for your attention during this presentation.
Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound hash key. Once again, star and one if you would like to ask a question. Your first question today comes from Robin Santavirta from Carnegie. Please go ahead. Your line is open.
Yes, thank you very much. Congratulations for a strong quarter in Q1. Now, surely the pricing outlook is strong short-term as well as you mentioned. My question, the first one is related to wood raw material availability and pricing outlook in Sweden and perhaps especially in the Baltics, given the shutdown of the Russian borders. Thank you very much for that, quite detailed outlook for Q2. What do you see sort of going ahead from that? Number two, you have now had time to take a bit of a closer look at the two mills overseas, Quinnesec and Escanaba. How well invested are these mills?
Verso had some financial troubles, a few years back. Now you come out with quite significant maintenance shutdowns and costly investments related to them. Are these mills well invested or not? Could you share some details on that? Finally, that conversion CapEx of SEK 9 billion, what is the outlook of that? We see quite significant inflation now. If we listen to Andritz voice or the equipment manufacturer, we see some companies pulling investment plans given the significant inflation. Could you share some information about the outlook on the transformation CapEx? Those three. Thank you very much.
Okay, maybe on the wood price, let me start about the general context and then Ivar, if you want to answer on the prices itself. I will talk about the mills and then the outlook on CapEx. Okay. Look, there's about 15 million cu of wood coming from Russia into Finland, of which one third is hardwood and two thirds are softwood. By closing the border, this created clearly a gap in the market in Finland, and then Finland turned around and looks at Sweden and at the Baltics. That is the mechanism why the prices. We had 80,000 cu of Russian wood planned for this year. We have canceled that and are not using any Russian wood in our operations.
Clearly we have seen now some price increases at the end of the quarter one coming already through in Sweden and also an acceleration of pricing in the Baltic states. We think that this trend will clearly not stop immediately because, as I said, the war in the Ukraine will basically, and the sanction on Russia will not go away from one day or the other, even if the war hopefully will stop as soon as possible. And therefore, we expect some inflation on wood. Do you wanna talk a little bit about the impact that this wood inflation will have on our P&L, please?
Yeah, I can do that. Good morning, Robin. I think in particular the hardwood where the situation is a bit more tight. I can say, and I think you also observe the same, that there is list price increases now coming across on several rounds even. You also know that we are one of the few players who have a pretty large portfolio of buying positions, so we try to maneuver this as good as we can. I think the overall story is that on softwood it's still pretty good availability. Again, it's the hardwood that it's tight, and I don't think necessarily the market has found its full balance yet.
Currently, what we're seeing is that there is a 40 SEK cu/s increase coming our way, and it's with some timeline. Probably gonna start hitting us during Q2 into Q3. I would certainly expect a couple of more list price increases on top of that when we're coming into Q3. Again, impact probably much harder on the hardwood versus softwood.
Okay. Thank you, Ivar. Okay, let me go to your second question. I think that the mills in North America, generally speaking, are well invested. The big investment or the big outage now in Quinnesec is really an upgrade of the mill and which will have some further improvement on productivity and on cost. This outage was basically always planned, so we knew about it, and we knew that this would be a big outage. It is a very, you know, a very profitable investment of the CapEx into that mill. Both mills, as you know, are the cost leaders in North America. If you look at Graphic paper and declines, they will be the last man standing, so to say.
I think that's a very good strategy in order to to make sure that they continue to work on lowest cost and best productivity. Therefore, there is no particular comments other than that. The investment into our transformation project will basically not be focused on renovating some of these assets, but will go into making these assets fit for our purpose, i.e., creating a very good cartonboard business in the U.S. in North America in general, and in particular, in the U.S. When it comes to the CapEx outlook, I mean, that is so far away that it's just a black hole. My perspective is we will now go into feasibility and we will do the concept, we do the pre-feasibility, we do the feasibility.
We all know that energy prices will not stay at that level forever. We all know that steel prices will not stay at that level forever. The time that we are ready with our CapEx, we will know what then the implications are. I think it's very hard to comment on that. I think when we are ready and our board has agreed to the CapEx of the transformation, then we will come back to you to talk about that. One other thing to keep in mind, we have a very strong market in the U.S.
Actually, as long as we do the project and the machines are running, we will deliver cash flow, which is the key advantage of having bought a business, which is actually a good business delivering cash flow rather than an idle mill or a green field or any other things, where you first invest a lot of money in it, and during that time, you don't profit from the cash flow of the existing business. Thank you, Robin.
I understand. Thank you very much.
Thank you. Your next question comes from the line of Linus Larsson from SEB. Please go ahead. Your line is open.
Thank you, and good morning to all. Please let me continue on CapEx. You outlined pretty well what you expect for 2022. To the extent that you have visibility, could you also give some more color on 2023? I understand if you don't want to comment on the transformation CapEx at Verso, but maybe if you could clarify the base CapEx at Billerud and the base CapEx at Verso, plus your own, let's call it, Swedish operations expansion CapEx.
Okay. Do you wanna take that, Ivar, or shall I start?
No, no. I'm happy to do that.
Okay.
Good morning, Linus.
Yeah. Good morning, Linus.
I think I go back to what we also presented in the capital market day back in fall of 2021, where we did mention that we will invest a bit more on some of our Nordic sites. I think we quoted an interval of base CapEx of SEK 1.5 billion-SEK 1.7 billion. That's still, I think, the best number I can give for 2023. We will come back in second half then with a little bit more accurate number. I would probably use the SEK 1.5 billion-SEK 1.7 billion for now. We would expect SEK 900 million for the Frövi recovery boiler project.
I think as we just went through for the Billerud U.S., probably somewhere between SEK 400 million-SEK 550 million is the best number we have for the time being. Now, I think, yeah, you also mentioned it. This is excluding any potential startup we might have on the conversion case, but it's too early to say. I think it is also then excluding potentially anything we might do in the Viken project, if that will become a reality and we decide to go forward. Hopefully that helps.
Yeah. Also, I think I just want to add a little bit to that. Billerud North America has currently a very different strategy to the Swedish mills, how they do their maintenance, over the years. As you know, Linus, in Sweden, we tend to have one week, 10 days or something, where we shut the factory, do all the maintenance, and then start up again. In the U.S., they do that slightly different. They have operating permits of two years, for the recovery boiler, so they stop them every second year. For the machines, actually, they do major maintenance every four years. If the recovery boiler just stops for a couple of weeks, then they would continue to produce paper based on the pulp that they have, you know, in reserve.
It's a very slightly different way of operating. I think 2022, it just happens to be a heavy year, with a big stop in Quinnesec and also the upgrade of Quinnesec. Then you will see 2023 is not a regular thing, but it will be lower at one year and then a little bit higher on another year. It's just a different way of doing it. They have been very successful with that in order to maintain the mills, so there's no reason at this stage to believe that their strategy should change.
Great. On shipments, if you could just explain a little bit on the volume development. You had a fantastic quarter, you said, production-wise, yet shipments were down 8% year-on-year in the first quarter. If you could you touched upon it with regards to Beetham, but if you could maybe explain a bit more why volumes were down both in board and paper in the first quarter year-on-year.
Yeah. No, it's a good question. Let me start, and then maybe Christoph jumps in. I think there's a couple of things in particular on paperboard, where last year, we actually got rid of a lot of, I wouldn't call it, scrap, but it's certainly secondary items, from the KM7 ramp up. We didn't do this this year. This year was solely focused on the, you know, very high percentage of primary, good value products. That's part of it. I think in general though, we see, and this is pretty big change from how it was, a year ago, you know, delivery times takes longer. We have, you know, a 25-30,000 ton estimate of, let's say, more good product in transit on its way for longer delivery time to the customer.
I think if you adjust for those two items, those are by far the biggest that would explain a lot of the delta gap on the volume.
The other part, Linus, is that you remember we were very low on some safety stocks, and particularly in liquid packaging board after the explosion in Gävle and after the rain, you know, this basically big flooding in Gävle. We are basically building these stocks back. I think all in all, that explains the, you know, the delta between volume growth and value growth, plus price increases.
Okay. Just one final housekeeping question you mentioned on. Well, first of all, you said you've done a preliminary purchase price allocation analysis, and then you also say from Q2 onwards, you expect additional SEK 200 million of depreciation from the Verso acquisition just to get things right here. Is that including, is that D&A altogether increase? I mean, does this also reflect the potential increases in amortization relating to the acquisition?
Yeah. No, I think absolutely. It's a bit of an estimate. I think as I said, it was a preliminary completion, so there's still some items that we expect to, you know, get a bit more familiarized with over the coming quarters. In all, the SEK 200 million per quarter is definitely an estimate now, taking into account what we know after the PPA exercise that we've completed so far. It might be some small fine-tuning of that number, and then we will come back in due time.
Great. Thanks for clarifying. Thank you very much.
Thank you. Your next question comes from the line of Johannes Grunselius from DNB. Please go ahead. Your line is open.
Yes. Hello, everyone. It's Johannes here. I have a follow-up here on Linus' questions about, you know, shipments being down quite a lot year-over-year, but you're indicating your production is, I don't know if I should interpret that to be flat or even up, year-over-year. My question is. What about if you would sort of shipped out what you produced? Could you give us perhaps an indication what that would have meant for your P&L? Because I gather that the positive effect on the P&L comes with shipments rather than production. Thank you.
Hey, Johannes. Good morning. Hey, that's very speculative. We have an increase in production, okay? I think it's around 1%-2%. And as we said, it goes into stock and you don't see it in the P&L because of delayed shipment. It's entirely speculative, I would say, well, if we would have solved that, we'd have gone more. You cannot underestimate the challenge, which I think we succeed in quite okay right now, to get the logistics right from our factory to the end user of our products. And this situation has incredibly tightened or has become more difficult with the war because as you know, you have a number of Russian trucks, you have a number of Ukrainian trucks. The Russian trucks are banned.
The Ukrainian drivers went home to fight the war, and that has basically exacerbated the situation even more than before. That's the situation, and I think the only point I can make on top of that is to say, well, everything which is on the road will at some stage reach our customers, and we will then book the sales and the profits, as soon as it hits their factory gates.
Okay. That's good to know and thanks for that clarification. I was also wondering, what's your interpretation of Russian paper exports that normally comes to Europe, which I suppose is more or less zero at the moment. You mentioned brown sack paper as one of the grades being hit here in the report. Could you maybe give some color on that and which other grades that you are involved in are mainly sort of impacted on the supply side here?
Maybe let me give you some color here because it looks like that's how we have a prioritization of growth and cartonboard, and then suddenly sack and kraft is exploding, and that's all good. Basically, there are two effects. The first effect, let's take the scenario 2021, 2022, is that clearly in sack and kraft, we have some longer-term contracts, in particular with the cement industry, and there's an annual price increase. This annual price increase is on the first of January, and therefore, sack and kraft has suffered in 2021, and now basically gets the benefit back in 2022, okay? That's one. The other part, you're absolutely right. There is no paper export anymore from Russia into the European Union. Prices are going up, okay? The market is very hot.
We all know that this is a very short-term effect. The underlying trend remains good, i.e., e-commerce, all these type of things moving from plastic away to paper packaging. That trend is still there. I think what we see today is entirely a very, very short-term effect because of the lack of, I think it's around 80,000 tons of kraft paper, which would normally be in the European Union available for packaging material, okay? That will not be able to replace so easily by the European producers, A, because they struggle with incredibly high energy prices and high pulp prices if they're non-integrated. For those who are integrated, well, they have the capacity they have. When it comes to us very specifically, clearly the strike of UPM in Finland hasn't helped us to cover some of this volume.
Whatever production we have lost, we have tried to continue to work on pulp. Whatever we have lost out of the strike in UPM is gone. Now we are back in full production also in Finland, but the situation based on the Russian closing of the border is basically driving this incredibly high price rise.
Okay. That's helpful. Thank you.
Thank you. Your next question comes from the line of Christian Kopfer from Handelsbanken. Please go ahead, your line is open.
Yeah, thanks operator. Just a few follow-ups from my side. First on Verso. I'm sorry if you mentioned it, maybe I missed it, but did you say how much deliveries you had in Verso for the first quarter?
I mean, we went through the Q1 result, and we talked about roughly SEK 3 billion of net sales. That we already went through.
Yeah, I know. How many deliveries? How much the shipments were in the first quarter?
In tons?
Yeah.
In U.S. non-metric tons?
Exactly. I have it. Sorry.
I think we can follow up with you.
No, no.
You have it?
Yeah, I do. It was roughly 300,000 tons. Okay, that's great. Also, you have guided for the maintenance stop in Verso for this year. How much was it for last year in Verso and which quarter did they appear?
I don't think we wanna go into that. I think it's quite well stated in their previous quarterly report.
Okay. Finally for Q2, if you can mention how much cash is left to be spent on the acquisition?
Yes. We would probably not expect too much. I guess now you're talking about a cash out impact. Are you, Christian?
Yeah, exactly.
Yeah. We would expect, I think, in the area of SEK 300 million.
Okay, that's great. Thank you very much.
Thank you, Christian.
Thank you. Your next question comes from the line of Oskar Lindström, Danske Bank. Please go ahead, your line is open.
Hi, this is Oskar Lindström. I have a question about wood sourcing. I mean, you're guiding for tighter wood markets resulting in likely rising costs in the coming quarters. Do you also see a risk for actual supply issues, you know, like there were a couple of years ago? What share of your wood purchases are on sort of longer term contracts versus, you know, more spot or near term contracts? Yeah, that's my first question.
Okay. Hi, Oskar. Good morning, Oskar. Let me say, we don't see any wood shortages at this stage. What we see is that basically hardwood clearly is more impacted than softwood. Softwood price increases went through as well because of some substitution effects between those. I do not think we are in front of a supply shortage in the sense of, you know, we wouldn't get the wood. That is not the problem. I think what we are seeing is that a forest owner and also the large companies have now increased their prices, and that effect will trickle through the market. There is supply security on the ground, so that is not such an issue at this stage.
Ivar, do you wanna add something on contracts?
No, not really. I mean, as you know, Oskar, we have a pretty large, you know, basket of different suppliers. I think with the pricing mechanism, that's more of a, you know, contractual part per se. No, I can just concur what Christoph mentioned. There is still pretty good availability on the softwood, so that looks to be less of a challenge. Hardwood for the time being is tight, but manageable.
Mm-hmm.
For the time being at least, we feel all right. No doubt, hardwood is getting tighter.
All right. Thank you. My second question is on cartonboard and the cartonboard market. I mean, we're seeing a lot of capacity additions, you know, in the pipeline and also being announced in cartonboard from your, you know, Nordic peers. To what extent does this new capacity, you know, give you concern? Do you think that the market can swallow the new capacity?
Oskar, if we had the double capacity, we would still sell it for you sometime. I think the market has been so short, and this has to do with, as I said, the underlying trends, recyclability. It has to do with the fact that e-commerce is moving into much more, cartonboard and paper and whatever you have. It has to do with the fact that all brand owners switching over from plastic. The underlying market situation for cartonboard is excellent. I think the capacity increases we have seen so far are basically covering just the shortage of what exists in the market. Therefore, that's a good thing because it will stabilize the market a little bit better, okay?
When you look at our situation, we still have incredibly long order books, and we don't see the end of it. What we see, however, is that in certain areas, if prices continues to rise, that brand owners will look for alternatives in packaging materials. I mean, it goes even from, you probably remember the times where toothpaste was in a cartonboard package, okay? Where they then decide to get rid of these type of packaging because the prices are totally unacceptable. I'm more worried, or not worried, I'm more worried. I think I see more an end to the price increases because it will ultimately then lead to a demand decline. I think the added capacity is not something we are worried about.
All right. You see, sort of a structural increase in demand.
Exactly.
more than offsetting this. All right.
Exactly.
Thank you.
You have the ups and downs because of market disruptions like COVID, like other things. The underlying trend in carton board is very, very good. I think paper is still under pressure because of the conversion opportunities from newsprint into graphic into packaging paper. On the carton board side, that's clearly a totally different thing. I must admit I'm very sorry we arrive at 10:00. I suggest one more question and then we stop here.
There are currently no further questions, sir.
Perfect. Hey guys, you're so well organized. Thank you everyone for today, for joining our call, and the key questions that you have. Looking forward to speak to you in quarter two. As you know, the forecast becomes better as the future moves closer, so we can tell you probably a bit more about H2, as we get to the quarter two results. I'm looking forward to speak to you then. In the meanwhile, all the best of success in your endeavors. Thank you.
Thank you and goodbye.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.