Good morning, everyone, and thank you for your interest in Billerud, and welcome to our first quarter 2023 earnings call. With us today we have Christoph Michalski, President and CEO, and Ivar Vatne, CFO. They will hold the presentation, and after that they will take questions from the participants on the call. By that, let me hand over to our CEO, please, Christoph.
Yes. Thank you, Lena. Good morning, everyone, welcome to our update from, for the quarter one, 2023. Before I go into the, into the core of the result, I would like to give you a short update on our Escanaba mill. As you probably know, on the 14th of April, we have idled the mill in due precaution of basically a fungus outbreak we had at the mill. It is a very rare infection that you find in selected areas in North America. We have been in very close contact with the CDC of the United States, plus all the different health and departments, be it federal, be it state, or be it local. We have decided to idle the mill and out of precaution.
We have not been able to find any traces of the fungus in the mill or in its close surrounding. Because this is such a rare infection, we have relatively little prior knowledge to this fungus infection. What we are doing today is basically cleaning the whole mill, in particular all the air conditionings, et cetera. We have about 100 contractor, outside contractor on site doing this job. For the moment, everything is in line with our restart up. As we said, we would be idle for around three weeks. Clearly this will impact a little bit the quarter two results. This is not a quarter one issue, it's a quarter two issue. Currently we foresee a financial impact around SEK 100 million-SEK 150 million.
That is basically the update I can give you today. The situation is moving quite fast as we go through the cleaning and discussion with the expert. From our perspective today, there's nothing which stops me to think that we will be up and running again in the beginning of May. Good. Let me move into the quarterly results. Clearly, we had relatively good top line growth. As you can see, 56% organic, 55% reported with the acquisition of Verso in the United States. Demand has been exceedingly slow. I would argue very soft. We had containment of about 117,000 tons. At the same time, we are reaching the peak or are still in a very high input cost regime.
In particular, wood cost is up dramatically about close to 50% from last year. Chemicals is also a very significant cost driver in our P&L. Price pressure in some categories. We have clearly carried over some price effect from last year into this year. As I mentioned before, we had some increases in liquid packaging board in particular. I think what we have seen is that the cost increases have been significantly higher than the price effect of Q1. We also have some mix effects when we have this type of soft demand .
In some of the categories like paper for instance, we would, if we have a lack of demand or containment in paper, we would produce more pulp, and that's what we have done, and that has clearly a mix effect. Also within the categories, there might have been some more selling of lower added value products in order to run the mills as optimal as possible. If you go to our first The next slide, which shows you the sales growth, you can see that we had a reasonable currency and pricing effect. However, when it comes in volume and mix, the addition of the U.S. didn't counterbalance the negative effect of the mix effect in Europe. Nevertheless, we had, as I said, a good 6% organic growth in the quarter.
When we go and look at EBITDA, the situation is clearly much more dramatic. Here you can see the waterfall of our EBITDA, positive currency effect, pricing, positive pricing effect excluding pulp. You have a very good volume effect from North America of SEK 628 million EBITDA. The overall effect is only SEK 574, which is a negative mix effect from Europe. You see the dramatic SEK 1.3 billion additional cost of raw materials and logistics, including pulp and wood, sorry, including wood and chemicals, which basically is lowering the result quite significantly. We have also identified all the effect of our profit enhancement program, which was around SEK 100 million for the quarter.
Very pleased by that starting progress. We had in others, it is mainly lack of fixed cost covering and salary increases in corporate projects, which add up to about SEK 200. At the end, if you take out the maintenance schedules, quarter one result is at SEK 1.484, and you see the overall bridge, how these results comes to be. If I move to the next slide, which is more about our market condition, clearly that is what is currently driving the results.
I think it has been commented many, many times now before. In the whole industry, we have basically a double effect of very high stocks, which were created at the end of the pandemic with the logistics challenges and things like that, where people, afraid not to get material, basically ordered a little bit too much. This stock is now in our customers and their customers, brand owners, et cetera. With the economic situation present, the consumption of these materials in stock is somehow slower as what we expected, even still in quarter four, or in January when we had our discussion then. Basically, the strongest effect is clearly in industrial, where our exposure to the cement industry and in particular sack paper has slowed down dramatically, and this probably will last on.
You all know the situation that the building industry is facing now. I think overall, we can argue also in the consumer luxury food and drinks and the printing and publishing, we have the same situation with slightly different drivers. When it comes to printing and publishing, we are clearly exposed to a lot of the marketing spend in North America when it comes to graphic paper, in particular catalogs, and direct mail and these type of products. There have been a slowdown a little bit in this consumption, but there is a, I would say a relatively good hope and perspective that this could recover a little bit more in the second half of the year.
While food and drink is mainly a European exposure, we have basically seen a relative slowdown or at least a consumer down trading, which also resulted in lower consumption of our type of premium packaging materials. I think what we see going forward is still not much change in quarter two when it comes to the market dynamics. We expect things to recover slowly in the second half. The initial recovering is the basically consumption of the stocks that are currently in our customers and brand owners. When it comes to the economic development, we have to see what is happening in the second half of the year and what is the outlook also for 2024. Having said that, I will now hand over to Ivar. Good morning, Ivar.
If you would like to talk a little bit about the movement of input prices and our expectation to those going forward.
Thank you, Christoph, and good morning, everyone. A couple of words on the input cost. Always a topic of high interest. We have seen another quarter where incremental cost inflation has hit our P&L, but also for this quarter, there are big differences between the regions. For North America, we've seen a flat cost picture when comparing versus quarter four, so that will be Q1 over Q4. There has been some hurt on chemicals, but this is offset through lower energy prices, and in particular, natural gas, which has taken a bit of decline last couple of months. Net-net flat for North America. For Europe, the situation is a bit different. We've added roughly SEK 65 million of incremental cost. Again, that is then quarter-over-quarter, so Q1 over Q4. Clearly, most of this is coming from higher fiber cost.
That's roughly SEK 130 million. We also had another smaller hurt on chemicals, which is minus SEK 10 million. Going the other way and helping us, we've had SEK 60 million help from energy and roughly SEK 15 million coming from logistics. Going into Q2, we do expect to start seeing some help from input costs, first and foremost in Europe. If you start with Europe, we expect in the area of SEK 125 million of help coming into Q2, and that means it's Q2 versus Q1. Most of this expected to come from chemicals, estimated to be SEK 100 million, followed by energy, SEK 50 million, due to spot prices are now on lower level versus what we've seen in the past. We do expect a small hurt from fiber cost, while logistics should stay roughly flat.
Just a couple more words on the logistics. We do have a new logistics on the overseas freight starting to help us from May. That will yield significant savings going forward, but that actually is not going to help us before we enter Q3. That contract is worth SEK 350 million, so it is a pretty big deal. Again, it will start to help us from Q3 onwards. For U.S., let me comment quickly on that, for Q2, we do expect some hurt on fiber in there on SEK 30 million. Again, we should be fully offset by estimated lower energy. US also in Q2 should be flat versus Q1. Right. Let us move on over to product areas. We start with the paper.
The product area paper had a pretty decent quarter, given the tough market conditions we have been facing. Organic net sales of 13% when the North America and currency is excluded. I'm excluding pulp, some comments on pricing. It added SEK 40 million of incremental pricing. That is versus Q4. Specialty helped, partly then offset the other way by declining pricing on both sack and kraft paper. The graphic is holding off pretty stable. Pulp is clearly moving these days, which shouldn't be a big surprise, and the pulp pricing impact was more than SEK 110 million. Net net for paper, including pulp, we look at -17 pricing versus then Q4.
The big event for paper this quarter has been the very slow demand. We have seen continued customer destocking and general order books coming down as market uncertainty is high. Christoph mentioned this, but this has caused some of most of our paper machines to take in downtime during the quarter, in total 78,000 tons. That level of curtailment we've never seen before. We were able to hold up the paper profitability in a good manner as input cost inflation in North America has been much more modest versus what we see in Europe. Having said that, our paper margin in Europe is still impressive and holding up really well, spearheaded by the sack profitability, and particularly the brown sack has been doing well. We were hit in the quarter then by this curtailment and the fixed cost on the recovery.
If you move into the next area, and that is product area board, net sales growth close to double-digit. Clearly, that's also helped by currencies organically. We recorded 5% versus a year ago. Most of that is coming through the pricing carryover positions. Also for this quarter, we see top line growth coming across pretty much all the categories. In terms of pricing, overall board came in flat when compared to previous quarter. As Christoph also mentioned, for liquid packaging, we've had help as revised pricing position has come in play from January onwards, while we have hold up pretty well for cartonboard. The big change in terms of the negative pricing for board has been on containerboard, where we've seen quite heavy price pressure. Again, total for board, flat versus Q4.
In terms of the production volume, it's pretty much the same story as we explained for paper. Demand is soft for most categories, and we try also to keep a close eye on our inventory levels. We've taken significant downtime in several machines. 39,000 tons is the number that we've had for product area Board. Again, this is also some kind of unprecedented level that we have seen this quarter. Profitability is a challenge for product area Board, clearly linked to also Board being exposed to Europe's quite unique and extreme cost inflation level. If there is also some piece of good news, we had some production challenges in Q4. As I think some of you remember, we have had none of those in Q1. At least from the stability point of view, it's been very, very solid. Good.
We move on, and some words about cash flow. Cash flow performance has been a challenge this quarter. In essence, the working capital movement is significant and causes us to land on a negative cash conversion. Couple of factors playing in on the working capital. I mean, the receivables is actually doing very well. We don't have any big movements to talk about. We are slightly higher maybe than we would expect on inventory levels, but we also came actually down quite a bit on the inventory level in Q1. We don't think we have a massive issue on overall finished goods inventory versus what we bill. The big drop has also been on the payables and comparing that to the balance end of 2022.
Part of that is due to one-off items, part of that is due to some timing, and there's also been, in general, a much lower purchasing pattern with lower-than-expected production schedule and no maintenance shutdowns in the quarter, et cetera. I'm the first to admit that the Q1 cash flow conversions is not something we're happy with, and it's a clear priority for us for the rest of the year, so for Q2 to Q4, to move back into solid conversion figures and land 2023 in an acceptable manner. Balance sheet still strong and way below the target. A couple of words on the last bullet points there on the CapEx guidance. We do lower the CapEx guidance for 2023 by SEK 200 million.
New estimate is SEK 2.9 billion, SEK 2 billion of that coming from base CapEx across the regions, SEK 900 million related to our ongoing project of the new recovery boiler in Frövi. Next slide, please. I wanna talk a little bit about our profit enhancement program that we launched some months ago. I think we have now a good quarter under our belt with some highlights to talk about. I mean, there's no doubt that this is one of the most important company priorities for 2023. We used the last couple of months now to really mobilize and organize the relative project streams. I'm happy really to see the enormous engagement energy that we have now behind the program throughout the full organization.
Multiple initiative owners now in motion making detailed descriptions of all the different initiatives and what we're trying to achieve, linking them to specific KPIs. Q1, we recorded SEK 95 million of program impact, and with that, we are well on track to deliver the SEK 400 million net target we've set to be delivered in 2023. We're looking more and more into more program pipelines for the coming years as this certainly is a three years program, and we aim to see steady progress for the next quarters.
Yeah, just at the bottom of the slide, you can see some of the highlights and examples for Q1 and how they illustrate that these initiatives are different from our previous cost and efficiency program, where this program in particular focus more on functional collaboration to fulfill more of the potential that we know we can find in this company. With that, I hand it back to Christoph.
Thank you, Ivar. Let me talk a little bit about the priorities for the rest of 2023. What you've already mentioned is clearly we have to work on our enhancement program. That is basically the only thing which is in our control compared to the, say, the market dynamics. We will continue to have selective curtailment in order to manage our stock levels in a good way. This will lead again, unfortunately, to under-recovered fixed cost, but it's a far better way of managing our cash flow going forward than to continue production for stock.
We will continue tight control on cash flow. I think an important point here is we will continue to scrutinize base CapEx in the sense that we have already taken the decision now to lower the CapEx by about SEK 200 million. We basically turn every stone to see if there are further savings which can be done this year. What we will not do is to basically impact the CapEx on our strategic process, strategic project, in particular, Frövi, which is delivering incredibly well. We will probably be online a few months earlier than we originally planned. The project is well managed in budget and on time despite all the challenges we had during the COVID period, and logistics issue and cement issues that have touched us.
Norway is continuing in the feasibility phase, and we expect late quarter three, beginning quarter four as a final CapEx decision. Just for you to remind you, this is about our BCTMP pulp mill that we are developing together with Norske Skog. Finally, the biggest project in our stable, the U.S. transformation, is also going through all the different project phases in order of preparation. Just as a reminder, it's basically a project which looks at converting a paper machine into a cartonboard machine, to install a BCTMP pulp mill, and basically upgrade the mill to make it future-proof when it comes to all the sustainability performance in North America. Very good.
When we look at the outlook quarter two, I wish I could give you a more positive view, but I think today we are very realistic that we will have continued weak market conditions, and that basically is slowing the destocking of our customer and brand owners. We hope that in certain segments, we will see a little bit better performance in the second half of the year. We will have lower volumes on the back of production curtailment, probably in line of what we had in quarter one. The cost inflation is expected to ease, but it will ease slowly because all the cost reduction that we are seeing, which we are negotiating as we go forward, will only go into our P&L a few months later.
Finally, I think with that weak demand for the moment, prices have been under pressure, but still have held up reasonably well. I think in quarter two, we will see some more pressures and in certain categories, some decreases in prices, which again will put pressure on our profitability as we go forward. I think none of this is particularly structural. It's more a market issue. Therefore, I think with improving market conditions, our profitability will recover fast. In the meanwhile, we basically will focus our efforts on our enhancement program when it comes to efficiencies and profitability, we will continue to focus on cash flow. Good. With that, I finish the presentation for this quarter one, I'm looking forward to your questions.
In order to make it simple for us as well, I would like to ask you to ask only one or two question at a time so that we can give you a proper response. Eva and I are ready to go. Operator, could you please take over?
Of course. Thank you. This is the conference operator, and we will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who wishes to ask a question may press star and one at this time. We will pause for a moment as callers join the queue. The first question is from Linus Larsson with SEB. Please go ahead.
Thank you very much, and good morning. Starting with North America, which has become a pretty significant part of your profit pool. It's actually bigger than the board division currently. I think EBITDA margin was something like 19% in the quarter. You talk generally about potentially lower prices in the second quarter. Does that hold for the U.S. as well?
Good morning, Linus. Why don't I try to give a little bit perspective on pricing going into next quarter. Maybe I actually do both Europe and U.S. at the same time. I think it's absolutely a bit sketchy at the moment in terms of what we see on pricing. For the time being, we are pretty, let's call it, confident that we are able to hold pricing in U.S. Q2 over Q1. We do not expect to see a significant item there. There might be some smaller mix impact, but in general, for now, we are pretty neutral on what we expect to see.
I think for Europe, it's certainly starting to look more challenging, we do expect to see, you know, further price drops now, both on containerboard, cartonboard and sack and kraft. We have a rough estimate between 3% and 3.5% of material sales in total for the company. You can use that SEK 10 billion of net sales as a good proxy for what material net sales is. That 3% and to 3.5% is then solely estimated to come from Europe in the Q2 over Q1.
Great. That's very helpful. Thank you very much. Just continuing on North America, you're saying this, that this stop in the second quarter at Escanaba may have an impact of approximately SEK 100 million-SEK 150 million. I just would like to get this straight because you did take... Presumably, this is mainly production-related, and you did take downtime already in the first quarter. Just to get this like for like, what's the incremental burden that you're expecting at Escanaba Q2 on Q1?
If you look at the Escanaba mill, what we have done is we have pushed as much as we could production into Quinnesec. We also had planned some downtime in Escanaba, basically both factors in itself will make the stop of three weeks have a relatively little impact, as we said, SEK 100 million-SEK 150 million. Of which I think half is more or less the market effect of things that we cannot deliver. There are certain products we can only produce in Escanaba. The second half is basically cost of subcontractors and third parties and whatever you have in order to do this massive cleaning operation in the mill.
Maybe I can just add, Linus, on this. I can confirm that number is the incremental number that you should use Q2 over Q1. As Christoph said, it's a mix between the incremental downtime, and it's the estimated third-party cost that we expect to see.
Okay. That wasn't clear when I read it, but that's very helpful. Thank you. Then continuing on North America, I mean, at this stage, are you as management aware of any claims directed towards Billerud in light of this blastomycosis outbreak that we've seen?
For the moment, we haven't received any claims, but, as we are talking the North American environment, I think we would probably expect some to come. I think as this is an illness which basically you recover, in the best-case scenario, recover very quickly without any side effects of what we understand today, and therefore, we expect the claims to be relatively limited.
Okay. Just finally with regards to these health concerns, what makes you confident that you will be able to start up the mill in the beginning of May?
Look, it's very simple. When we got, when we got to know about the first cases, we had a very, very significant search with all the health authorities and industrial hygienist about the causality. In the beginning, we didn't even know that there would be a concentration at the mill. We couldn't find any source of this particular fungus in the mill. Basically all the analysis are ongoing. We are following basically the recommendations that we started in the middle of March, end of March, already some cleaning operations in the mill. Basically then we realized in order to do a proper all mill cleanup, we need to get people out of the mill during the cleaning operations. As soon as this was clear, we basically took the decision to idle the mill out of precaution to do the cleaning job.
We don't know where, how people got infected. We just know that all those cases of proven or suspicious cases that these people have been at the mill. That is why we're pretty confident that with the help of all these experts that we have engaged, we will do the cleaning process that is very well planned now and three weeks that will be done. Also we have already today, you know, basically the case numbers were very, very high in the middle of March. They already have come down. Our expectation is that we will start up the mill, and we will maybe not even ever know where the fungus came from.
Okay, great. Thank you very much.
The next question is from Robin Santavirta with Carnegie. Please go ahead.
Thank you very much. Good morning, everybody. I have a question related to the pulpwood cost and availability situation in Sweden and in the Nordics. How do you expect pulpwood cost and availability to develop now going forward in Sweden and the Baltics? It seems you guide for a small increase in pulpwood cost in Q2, Q1. How does that stack up with Sweden and Baltics? Any difference there? Do you expect sort of further increases down the road? I saw Mellanskog now increasing again. Will that impact you at all?
Okay. I think there are two aspects to this question. The first is the market dynamics. Clearly after the closure of the Russian border, the market took some time, and there were even some availability issues in order to rebalance between Finland, Sweden, Norway and the Baltics. What we see today is that we do not have any specific availability issues, but overall the prices of pulpwood have gone up, in Sweden on a very progressive way. In Baltics there was a huge peak and we see already prices coming down from that peak. Okay? That's the market situation. For us, clearly the situation is specific to our buying structure. We still buy hard wood from Balticum and prices are coming down. We are shifting within our different sources of wood, Balticum, Sweden, et cetera.
Also the channels, like, forest owners, private forest owners and forest companies. We expect hardwood, to basically be more or less at the peak and, for us, basically stable and then probably coming down a little bit in the second half, but to marginal extent.
All right. Thank you very much. The second question I have is related to your North American or the Verso business. It seems demand is actually quite weak at the moment, but still profitability holding up surprisingly well. I guess Iva was commenting that Q2 performance when it comes to pricing will be essentially unchanged at very high levels. How do you see sort of the second half of the year related to pricing? What are the dynamics? I mean, if demand is weak, input costs are probably not coming up rather down. Why are prices not coming down? Is it something we should expect for the latter half of the year?
Okay. I think, let me split a few of those dynamics. I think the number one dynamic in the U.S. is that probably you cannot compare price movements five, six, seven years ago to today. There are far less players in the market. You have much less mills and therefore I think there is a much better price discipline in the market because basically there is only a limited availability once basically demands starts again. Therefore I think prices are holding even with basically lower demand. When it comes to the demand, I think we see, we see some clearly signs in the U.S. economy that things are what they are but are not getting worse and potentially might even get better.
That is, will definitely then have an impact on advertisers in the U.S. to continue to basically restart their communication. As you know, the general effect that printed advertising with digital advertising together has proven a winning concept for most advertisers. Therefore, I think we see some positive structural sign in the usage of paper, be it direct mail or catalogs and things like that. Last but not least, we are also in categories which are basically printing of schoolbooks and things like that. These things will not go away, et cetera. We see basically once the stock level is through in our customers, then we basically see demand basically normalizing again because we have through flow.
I think what we maybe underestimated earlier on is the speed at which that stock would disappear. Initially, we hoped in quarter two, we would have already some positive effects. I think now we are seeing this probably moving more into the end of the summer. Generally speaking, I think we are confident that the U.S. business will motor well, and this was more like in Europe, a bump in the, you know, in the overall track. I think overall, we are very, very well-placed to exploit the opportunities both in Europe and in the U.S.
Oh, I understand. Thank you very much.
The next question is from Johannes Grunselius with DNB. Please go ahead.
Good morning, everyone. It's Johannes here. Thanks for your.
Good morning.
Thanks for your comment about pricing in the Q2. That's very helpful. Just to clarify, Ivar, did you mention it was SEK 125 million in total tailwind from mainly chemicals? Was that right?
No, it was a little bit more balanced than that, but it's the number is right. The SEK 125 million, that's kind of what we expected, where the big chunk should be chemicals, SEK 100 million. We expect in the area of SEK 50 million coming from energy, and then we will have at least an estimated herd of SEK 25 million for the fiber.
Okay. Got you. My question is that it sounded that the easing of the cost inflation or the lower cost is only partly impacting Q2 because of delays in the P&L. I mean, how should one think about cost easing Q3 versus Q2 here? Is it like a similar tailwind in the third quarter, would you say? What you see now?
Yeah. I mean, be a little bit more careful of guiding that far, since the visibility starts to be lower. I can certainly say that if you think about, it was also Robin alluding to, there's still a little bit movement on the negative side on the fiber. We probably have a little bit further tail of some of the latest price announcement on the pulpboard here in Nordic. Everything else equal, at least when we see now the spot rates, let's call it during Q1 continuing forward, we would expect chemicals and energy to help us. We, as also mentioned, have another significant logistics help kicking in from Q3. Everything else equal, we at least should have the same level Q3 versus Q2.
Again, this is where it starts to be a little bit more difficult to give good guidance.
Okay. Got you. I was also curious if you could sort of share your thoughts on where the market is right now for the board division. I mean, the food and beverages markets in Europe. Where do you see sort of the activity or markets year-over-year here because of the sort of intense restocking destocking behavior?
Yeah. I think on the cartonboard business, clearly, there are many, many categories, so to say. Let's start. Liquid packaging board, it's very stable. I think there's overseas growth, but in the developed market is stable, so that's very good. When you look at things like fluting, our focus has generally been in the production of citrus fruits and things like that in the South of Europe. You have probably heard that we had a relatively dry harvest, and therefore, under production on products like lemons and avocados and whatever you have. Therefore, we expect that people still have quite some stock, and that will carry over the whole year. We think that this business will not recover very fast.
When it comes to other containerboard products, we see some weakness there, and that will basically only significantly recover once the economy in Europe is recovering in a good way. Cartonboard, it's really accounts by accounts. We see shifts here and there, and it depends a little bit on our customers and their exposure to different food types and product types in the market.
Okay. That's helpful.
As we always said, we are very much the economic activity is the key driver for consumption here. As long as people are struggling with inflation and higher energy costs and mortgage costs and whatever you have, I think that is the key driver for the slowdown of consumption, and that we hope will ease up a little bit later in time, later in the year.
Yeah. I have also a final question, and that is if you can help me about your sort of, where you are in terms of your nominal capacity or so. I mean, your shipment in the board division is slightly less than 500.
Where would you say your capacity is at? There has been quite a lot of changes, obviously, in the company over the past year.
You want me take that, Ivar?
Yeah. Maybe I can actually give a little bit on the total number. I might not actually have the split for you, Johannes. I can say that in general, when we were in the area of 950,000 tons for this quarter in terms of sales volume, if we are going full blast for, let's call it all the mills, and you say that the market is strong across both region we should be about 100,000 tons higher than that. That gives you some indication. If you just do a little bit of a pro route of that, you will probably come to around two-third of that or 60% so on should be in paper. That just gives you a bit of an indication that, yeah, it is soft at the moment.
You know, hopefully we will get to see a little bit high utilization rate when we come into the second half of 2023.
Okay. Thank you very much.
The next question is from Martin Melbye with ABG. Please go ahead.
Good morning. We've covered the price and costs. Regarding volume, you've given the Escanaba effect, but you also say that lower volumes will be a topic for Q2. Is that a continued negative compared to what we already had in Q1 in terms of impact?
Yep. This is a good question, Martin, let me try to answer this. I think we know that Q1 was softer. I just explained also to Johannes that they're quite far from what we believe the technical capacity could be. I think we, in many ways, are quite neutral in the sense of we don't expect much better in Q2 versus Q1. The only thing you probably could add as another negative is the Escanaba event. It's in the area of additional 15,000-20,000 ton that probably we get as an impact of that. You know, we also have the Karlsborg and Gruvön maintenance stops coming in, that usually also has some implication on the volume.
That's anyway, that volume impact baked into this estimate of 330 that we have provided. This is where it starts to get a bit challenging this time because now given we have quite lower than 100% utilization, we also have a bit of inventory to lean on. Summing it up, I would say that, hey, Q1 was challenging. We probably don't expect much more and maybe do a correction for the extra downtime in Escanaba, 15,000-20,000 tons, probably a reasonable estimate of what Q2 will be.
Great. What was the key reason for the higher working capital and what you see on energy costs in 2023 versus 2022? I think you've guided on that earlier.
Yeah. Let's start with the with the cash flow item. I think there's quite big movements, but I can try to take them kind of one by one. The receivables, that actually had some help from that. Lower receivables related to the electricity hedges coming a bit down, so that's SEK 400 million. Inventory, not a major difference. If I'm honest, had a little bit of hurt. That was mainly due to the inventory revaluation input. To be honest, the finished goods inventory was actually not much changed at all. The biggest piece that's, you know, more than SEK 1 billion, it's coming from the from the payables. I think I mentioned it quickly, but it is a combination of some one-off items that we had in the quarter.
We had some bonus payment, for instance, in U.S. that is a bit of a, you know, new item that we have with a different timing. There is a certain timing impact just, you know, around the New Year's there that played a part. In general, we just have lower activities now because of managing inventory and lower activities. The, let's call it purchasing of raw material and input factors have come down quite a bit. Those are the big items that is explained. As also mentioned, we have a very clear ambition and motivation to improve this from Q2 onwards. I think... Can you just repeat the question, Martin, on the energy again? What was it?
I think you've guided on energy costs earlier 'cause it's, yeah, given hedges, et cetera. What you see now in 2023 versus 2022 on energy costs for the full year?
No. I think if you start with Europe only, I think the electricity cost we landed on for the year was EUR 52 per megawatt. Again, that's a combination then of very high spot and some hedges. The latest estimate we have now for 2023 is around EUR 59 per megawatt. Everything else equal, if you just, you know, use the roughly 2 terawatt that we tend to purchase in Europe, that should be in the area of SEK 140 million-SEK 150 million year-over-year. The 59 megawatt, sorry, EUR 59 per megawatt, it's combination of the spot rate now around 80 that we, at least for this calculation assumed will stay flat rest of the year.
We have hedged 67% of the consumption in Europe, and we've hedged that at pretty good level, EUR 38 per megawatt. Hopefully that's some help along the way.
Excellent answer. Thank you.
The next question is from Geoffrey Béchameil with Bank of America Securities. Please go ahead.
Good morning, Kristof and Joar. Thank you very much for your time today.
I have two quick questions on cost. The first one is, could you remind us what is the cost of your efficiency program over the year? I'm just trying to understand what will be the net benefit of the program in the bridge. Then the second question I have is, in the report you mention that you had a negative effect from sales from inventories on your fixed cost position in Q1. Do you expect this to reverse in the second quarter? Will you be able to give us an impact that this could have? Thank you very much.
You take it, please.
Now I just need to maybe actually start with the second one. I think the answer is no, we probably don't expect that to reverse in Q2. I think maybe more in the second half, we're more hopeful. I think for the first one, or Q4 to Q1, we don't expect that to reverse. I think the first question is around the efficiency program.
Correct.
As I said, I think SEK 95 million is now what's recorded in Q1 versus a year ago. You know, the net effect we've set for the full year is SEK 400 million. You can say that we're good on track for delivering this. Clearly, in the conditions we're in, we will do everything we can to potentially also accelerate, you know, delivery on that. For the time being, you know, the target is SEK 400 million, and we want to really get solid and good building blocks for that. Difficult to say much about the sequence of those quarters. Probably for the prudency for this purpose, I would just assume a flat split between the quarters for that SEK 400 million along the year.
Thank you very much, Ivar. Can I just follow up with one quick question on Escanaba? Is there any impact from what is currently going on on the conversion project?
No, not at all. The conversion project, basically the development of that project is continuing. The Escanaba situation right now is only impacting short-term production in the next three weeks.
Very clear. Thank you very much for your time.
The next question is from Oscar Lindström with Danske Bank. Please go ahead.
Good morning, Oscar from Danske here. A couple of questions. First off, are you feeling any... We talked a little bit earlier, you talked a little bit earlier about the fiber situation, and I wanted to focus a little bit more on northern Sweden and your Karlsborg mill, where we have both Metsä's Kemi mill starting up later this year across the border in Finland. We've also heard from Sveaskog that they will sharply reduce their harvesting levels up in northern Sweden. Is this something that's putting pressure on sourcing fiber for your Karlsborg mill? That's my first question.
Okay. Let me take that, and then you can ask your second question. Good morning, Oskar.
Morning.
Yes, clearly, I think wood supply on a very micro level in the north of Sweden will be more stressed by the startup of Kemi and also by the reduction of harvesting. We have our mitigating program in place, and that basically is looking for additional private forest holders, harvest and purchases. Also we realize this is a, I mean, the challenge is for all players in the north. You know, it's a question how far the wood has to be transported in order to fill that gap. As you know, Karlsborg is a very profitable mill for us, and I think we're in a very good position to mitigate the increased cost because I do not think it will result into an availability issue.
Right. My second question is on CapEx. I mean, you say, the CapEx reduction of SEK 200 million for this year is not going to impact your strategic projects, which I understand most likely wouldn't have CapEx expenses until next year, really. However, I mean, could the weaker market outlook that we're seeing now have any impact on your strategic investment decisions?
Not really, because we are currently working on the projects as basically, as you said, you rightly said, there's only limited CapEx in 2023 and then significant more CapEx in the years to come once we have decided on the timing and the size of these, of the conversion in Norway, et cetera. I think like most things in time, you also know that we can move CapEx. We have maintenance CapEx we can move around a little bit. We can delay projects, you know, kind of, in, you know, smaller improvement projects and things like that. We will discuss at the time when we are ready, what is the timing of the big strategic CapExes. There's no effect on the projects today, as you mentioned, because we don't spend too much CapEx on these strategic projects.
All right. Thank you. Just a quick question to Ivar, I guess. What was the electricity consumption figure you mentioned for Europe specifically? Was it 2 terawatts?
Yeah. You can say the overall consumption is an area of 3.2 terawatt. We make around 1.2 in our mills, and then we purchase or buy an estimate of 2 terawatt on a yearly basis.
This is in Europe?
Yes, correct.
Okay, wonderful. Thank you very much.
Thank you. I think we arrive at the end of the time, but we will continue for a little bit as we lost time in the beginning. I think we have maybe two or more, we take one or two more questions, I think, and then we close the call in about five minutes.
Okay. The next question is from Cole Hathorn with Jefferies. Please go ahead.
Morning. Thanks for squeezing my question. Just some commentary on the wider sack market, you know, just seeing there from, firstly from a demand perspective and splitting it between your kind of bleach grades where you've got a good, strong market position and then the wider sack market where, I believe you sell more into the export space. Thank you.
Yeah. Hey, always good to talk a bit on sack kraft call, good morning to you. Listen, I think, in general, you can say that if you're going to the consumer side of sack kraft and talking about MG, in particular, it has held up pretty well in Q1, maybe relatively to some of the other channels. Clearly in the nature of consumer and also going into food services, et cetera, tend to be a bit more stable, the pattern we see. You can say that we have had, let's call it, relatively well held up on the different MF and MG grades, in particular in Europe. It starts to be quite more challenging. Christophe alluded to on the sack market.
We're very happy still with the with the profit that we generated in Q1, but it's clear sign now that there's increased price pressure, and we expect actually quite a bit of a net sales per ton drop on both white sack and also then on brown sack in Q2 versus Q1. We're talking then probably more than 10%. I think it's a combination of the construction sector is just in general very challenged at the moment, not only in Europe. And again, also some of the industry, other applications that we will see, including interleaving paper, etc., is also very challenged at the moment. We are much less positive probably on the sack market Q2 versus Q1 versus what we saw now, Q1 versus Q4.
Thank you.
The next question is from Jesper Mothander with Dagens industri. Please go ahead.
Good morning. Thank you for taking my question. Two quick questions on Escanaba. The first 1 is, did the fact that blastomycosis exists in the vicinity come up during the due diligence process when you purchased Verso? The second question is, the fact that you were informed by local healthcare authorities already on February the third, I think, that the atypical pneumonia cases among workers were suspected blastomycosis. Cleaning the mill for future operations is 1 thing, protecting workers is another. Can you please take us through the over a month-long process leading up to the decision to idle the mill on April the thirteenth?
Okay, let's talk about the due diligence. I mean, blastomycosis is such a rare illness that clearly this came not up as an issue during the due diligence. I think there are very few cases across the United States as far as I know. It happens on a very irregular and sporadic perspectives that people actually get hurt from blastomycosis. When it comes to this, it's an illness as far and as I understand that has to be reported by the hospitals to the health authority, which they do. We heard about the first case being notified on the third of March.
Basically after that, us not being the expert of this very rare disease, we followed all the recommendation of the public health authorities, be it the CDC, which you probably know as one of the big organization in the U.S., the Center of Disease Control and Prevention. We have worked very extensively with the health and safety authorities, be it state or be it federal and local, in order to understand what we need to put in place. The knowledge on this illness is relatively little. People know a lot about fungus, but not a lot about this particular one because it's so rare. We have basically followed all their recommendation, leading into basically some cleanups, some analysis of air, et cetera. After all these activities, we haven't still found anything unusual in the mill.
When basically we then discussed, around early February what else needed could be done, we basically decided to idle the mill. We made a cleaning program together with the health authority of what kind of cleaning was required and what kind of specific air conditioning, you know, basically reviews and checks should be done. Because it was so extensive, we needed to close the mill in order to get people out of the different areas where this cleaning took place. Today, we have now hundred and something subcontractor in the mill, as I said before, and they're running through a very systematic program. Therefore, I'm pretty confident that we can start up the mill after these three weeks, which basically I think we have two weeks left.
The startup timing is basically planned for the 8th of May. I think our biggest challenge is that no one knows where the fungus is. We don't know if it was an event. We don't know if people brought it from the outside. The only thing we know is that a number of people, and they have all been inside the mill, have been affected by this fungi.
Okay. Thank you. I'm sorry for my error. I said February 3rd when I meant March 3rd while asking the question.
Yeah, yeah. It was March.
Please allow me to correct myself. Yeah.
No.
Okay. Thank you.
No worries. Thank you very much. Okay. I think that ends our Q&A for the quarter one presentation. Thank you for your attention. I'm looking forward to talk to you all in July for the second quarter. Until then, bye-bye.