Sappi Ltd S/Adr

Good day to everybody. Thanks for joining on the call. As always, I will run through the investor deck, making a few comments and highlights, and then we'll open it up for questions. And I'm going to start on page three, which is a summary for the full financial year 2023. All in all, I think it's been a satisfactory year. As you know, we faced a number of macroeconomic challenges. And we also faced the impact of destocking throughout the year. Having said that, there was a number of milestones. As I said, we delivered $731 million of EBITDA, which is satisfactory. The South African business actually delivered a record EBITDA, so we're proud of that. And the North American business was the second highest ever. Unfortunately, did face challenges. The paper markets were weak, related to the reasons that I mentioned earlier. And in particular, that had an impact on our European business, which is the most exposed to those weak paper markets, and in particular, graphic paper. The pulp segments profitability was impacted by lower average pricing. and cost them on top of that. Having said that, net debt was, we're particularly proud that net debt is now the lowest level in 30 years due to the strong cash generation. So in spite of the fact that our profits were less, we were still able to draw, generate strong cash flows. And on the back of that, we were able to declare a dividend of 15 US cents per share. Turn into page four, which is the quarter highlights. The EBITDA came in at 168 million, which was obviously better than the prior quarter. And in fact, ahead of our own expectations, we definitely picked up more momentum as the quarter was completed. But it is important to stress that we still have challenging trading conditions. You'll see from our outlook statement later that that is still continuing into Q1. We did see a recovery in volumes for our graphic paper segment. It's, and I mentioned this previously on the last call, it's not a V-shaped recovery. It's a gradual recovery. But we did benefit, you know, during the core, quarter from higher volumes. It was record pulp sales volumes. We've seen stability at the cycle mill, and we benefited from that during the quarter. And then in the packaging segment, once again, the volumes were better, not a V-shaped recovery again, but better. However, that's a segment that we're still seeing the impact of high inventory levels. I think it's played in graphics, and we're back to the macro factors affecting demand. Whereas in packaging, we're still seeing a little bit of high inventory levels downstream. And obviously, in that segment, the unfavorable economic climate and its impact on consumer demand. Slide five has our product contribution split. Obviously, we've had volatile times in the last couple of years. But I think the overall trend that is playing out, and that's the importance of our strategic shift away from graphics towards the higher margin, the higher growth segments of pulp and packaging. And you see that on the right-hand side. Slide six has our earnings bridge. Normally, we do it year on year. This time we thought it would be useful to do it quarter on quarter because I think it tells a better, it tells a clearer sense of the underlying trends. And I mean, firstly, higher volumes coming through and that was across the segments. But, and it's something that we talked about in prior quarters, selling prices did come off. And that you would expect from the highs that we experienced earlier in the year. and a negative impact on graphics and packaging. The pulp price is a little bit in the quarter, but I'll talk later. We obviously have seen that turning positive in recent weeks. The costs from a significant high, we did benefit from lower costs coming through. And it's probably fair to say that we're getting close to the bottom. And once again, in our outlook statement, it does look a number of the variable costs are starting to rise once again. But all in all, $168 million of EBITDA are obviously significantly above the lows of Q3. Slide seven just reinforces the story on the cost side. And you can see all our major categories are coming down in the quarter. But as I said earlier, starting to level off and then some of them even turning upwards now. Page 8 highlights the debt story. And you can see we've basically halved it in the last few years. It's an important strategic priority for us. You know, we're very proud of the fact that we've been able to bring this down. Interestingly enough, the final number for debt of 1.085 was in spite of the fact that we had a negative currency translation impact from euros to dollars of 76. So, you know, we set ourselves a target and we were basically at those levels and very pleased with that progress. Slide nine has the maturity profile on that debt. And firstly, let me point out that the bigger maturities on the Euro debt are still a number of years out. And, you know, we're confident that, you know, we can manage that refinancing. In the short term, we've got some debt maturing in the current year, some SA bonds, some term notes in South Africa, you know, we're confident that we will refinance them. And then that $88 million you see there is a loan in Europe. And, you know, we'll be able to repay that with the cash that we have in the business in the current year. Turning to slide 10, the cash flow and capex. strong cash generation, as you can see, despite lower profits, another 200 million. The capex came in the year under the 400 million that we talked about in earlier quarters. That's just a little bit of spillage into the next year. The estimate of capex for 2024 is about 500 million. That's made up of maintenance capex of about The sustainability capex of about 60, 70 million. And then the balance is a big project that we obviously have talked about previously, the kind of expansion of PM2 at Somerset and included in the 24 years, about 150 million for that. And that's, I'll talk more about that just now. Slide 11. We keep tracing the discipline capital allocation. I think you see the benefits of that in our cash generation and the free cash flow that we've made. On the profit improvement side, we the closure of the stock that mill, and we're investigating the potential closure of the Mill. That will reduce capacity for graphic paper in Europe by about, It's an important step in our strategy as we reposition the business towards the higher growth segments of packaging and pulp. We had other projects on the packaging side, smaller projects, part of our overall strategy to reposition the business. In terms of shareholders' returns, yes, we didn't make our targets, but we were able to maintain our dividend. And as you know, earlier in the year, there was a share buyback program. And then finally, the expansion project, Somerset and conversion project included in the 23 capex number was 100 million for that project. So we're making good progress. Then moving to slide 13, and I'm moving into the product segments, and I'll just talk at a high level. All in all, for the year, volume's up, but we did experience lower selling prices, you know, as DP prices came off the highs that we experienced in the prior year. because of that, but we did have higher costs, and I've touched on that a few times. I'm very pleased that we were able to deliver record sales volumes for the segment in this quarter, and we've got improved production stability at the cycle now. The thing in speciality segment on slide 14, as I said to you earlier, It's the segment that's probably been the most impacted by the high inventory levels. At the same time, we've had the unfavorable economic climate. Having said that, you know, we're obviously starting to see a recovery. And, you know, as we move into the new financial year, and that high inventory levels becomes a thing of the past, we are anticipating a good recovery there. It's an area of the business that we want to continue to invest in. And then on graphics, I talked about it up front. We are seeing a recovery, but it's not the V-shaped recovery. It's a gradual recovery in demand. Our orders keep picking up week by week, and we are not going to get back to – Previous levels, the kind of peaks that we got in 2022, things are looking better. And obviously, we had to take substantial curtailment across the group because of the lower demand. We did benefit from higher cost savings in the quarter. Here on page 16, I'm not going to go into a great deal detail, but Europe was obviously challenging because that's the region where we have the most exposure to the graphic paper markets. And from an economic perspective, it's the region that's experienced the toughest trading conditions. This North American business also faced tough economic challenges. with all the good work that we've done in recent years to reposition the business, we were able to deliver our second highest ever EBITDA. And then in South Africa, as I say, records profitability and, you know, obviously we've been making investments in recent years and those are paying dividends. in graphically, and it just reinforces what we say. You can see that in all instances, volume is up. And, you know, obviously in South Africa and North America, margins improve. Europe, we still face the challenges. And that's obviously why we announced the capacity closures that we have. Slide 18 talks to our strategic, These are longer-term objectives. There's a lot on the slide, so I'm not going to go through all of it, but just an ongoing focus on operational excellence. We want to continue to look for cost-saving advantages. In South Africa specifically, the forestry footprint, if we can expand on that, that will lower our cost base and put us in a stronger strategic position. Pulp integration is an important priority, particularly obviously in Europe where we're less pulp integrated. On enhancing trust, a strong focus on our certification, our science-based targets, our commitments in South Africa with regards to triple B, double E, and lowering our carbon footprint. All of these are priorities. We want to grow in the packaging and offsides. We've got projects underway at to basically move that machine across the levels and the Somerset PM2 expansion and conversion projects. And then on financial health, I've touched on it a number of times, but great progress towards our debt targets. The slide 19 talks about the same thrive pillars and specifically focuses on RHE for the year. Again, I'm not going to go through in great detail, but I think all the good stuff we did on procurement and from a cost perspective, you saw the benefits of that coming through in particularly in the latter part of the year. On enhancing trust, we committed to the science-based targets during the year, and we We continue to make progress on that front. is those same conversion projects at Somerset. First of all, in South Africa, we've got a pilot plant that's gone very well, and we're doing some engineering on that. And, you know, that's a potential future growth opportunity. And then in terms of sustaining our financial health, We repurchased some of the 26 bonds earlier in the year, repaid some Salaskan bonds, so further progress on that front. The next slide talks to our Somerset conversion project. We'd like to keep you updated. I'm pleased to say that it's progressing well within budget, on schedule, on track, and still a long way to go, but so far, so good and progressing well for the start of completion early in 2025. You can see some pictures on slide 21. We're very excited about the progress. Then on 22 is our sustainability targets. We obviously talk about our three P's, the people, prosperity, and planet. On the people front, Across the board, great progress. Safety, it was our best ever safety performance. In fact, it was our best in all regions. Lowest number of injuries, and it's a strong focus within the business. We continue to make progress on diversity. development on our targets for women in the senior positions. And then, as I said earlier, on , we thrilled that we're still a level one contributor. On the financial targets, obviously, with the lower profitability, we did not receive, achieve the rookie targets. We are focused on getting that back on track. On slide 23 is our sustainability planet targets. I need to stress to you all that this is a per ton target. So, because of the curtailment that we took during the year, the mills become less efficient. In absolute terms, we did come down, but on a per ton basis, We did miss our targets. However, as we fill the mills in the new financial year, we're confident that we'll get back on track in terms of those and ultimately achieve the targets that we've set ourselves. And that moves us into 2024. You know that we've got our science-based targets approved. Once again, the downtime that we took does have an impact because it's on a per-ton basis, but we are If we look at the progress that we're making, we are on track for our 2030 targets. Turning to the outlook and page 26, the demand continues to be impacted by the global macroeconomic situation. It's still there. We're not out of things. And it's difficult to pinpoint exactly. when it will be at an end, and clearly it's still going to affect our Q1 2024 numbers, but we are anticipating further improvement through the financial year. The graphic paper has experienced a permanent structural demand, and that's why we made the announcements to rationalize our capacity in Europe through the closure or stop that and the potential closure of Larnaken and why we're making the investments. We are at Somerset and Gratcom. Page 27, I need to call out that we have three big shuts in this quarter, Sycor, Ndudwana and Cloquet. Already Cloquet and Sycor are behind us and those are back to production. Ndudwana, we're in the middle of the shut. But just to remind you, at some of our bigger mills now, we've moved to an 18-month window for these shuts, and that's why Ndudwana and Cloquet both fall within this quarter. The impact of those big shuts is 40 million. So when you're comparing Q4 of 23 with Q1 of 24, you've got to take into account that 40 million impact on a quarter-by-quarter basis. I said already the 500 million . So I'm not going to go into more detail on that. So notwithstanding this, the economic situation that we face, the gradual recovery that's coming through, these shuts that I referred to, all in all, taking that all into account, we anticipate that the EBITDA for Q1 will be below that of Q4. Operator, that's me finished going through the presentation. I'm now going to hand it back to you for questions.

Thank you so much, dear participants. As a reminder, if you wish to ask a question, please press star 1-1 on your keypad and wait for it to be announced. To withdraw a question, please press star 1-1 again. This will take a few moments. And now we're going to take our first question, and it comes from the line of James Twyman from . Your line is open. Please ask your question.

Yes, thank you very much. Thank you for the presentation. I've got three questions to structuring in Europe, if I may. The first one is the Larnacan closure. You mentioned that that's going to cost you 150 million euros. Could you talk about how much of that is cash? and whether you think that's going to be in this financial year. That was my first question. The second one was you made a $52 million loss in Europe. How much of that is due to exceptional depreciation in the quarter? I think it sounds as though you sort of bunged the fourth quarters of depreciation into one quarter for the assets that you were planning to sell, but I'm not sure if that's the case. And then thirdly, on StockStat, the closure there, could you talk around or what you think will be the benefits to profits from the closure. Thank you.

Thanks, James. Glenn and I will share this. Glenn will talk about that accelerated depreciation the second and we'll share the rest. Just on Lanakin, obviously, for the purposes of the accounts, you have to make an estimate. That is a process that's underway, and you have to be conservative with the estimates that you make. It's not a complete process. The discussion is underway as, you know, as we speak, and it's going to continue throughout the court. So, we felt it was important to be conservative and give an indicative value. It is all cash, but, you know, we have to see how things unfold over the, the next few weeks. And it would all be cash in the current year, specific to your question. Glen, do you want to talk about that 52 million depreciation in Europe in Q2?

That's right. So, we identified the three mills, Cape Nimi, Stockstatt and Maastricht as held for sale at the beginning of the year. We didn't depreciate them through the course of the previous three quarters. We've changed our intention in terms of how we're going to be treating those mills and how we're going to be managing them going forward. And as a result, reversed the hold for sale and then put through the annual depreciation on those three mills that came through in the term. And that is about approximately $40 million.

Thanks, Glenn. And then on the third one, for StockStat, you asked about the impact. In terms of a cash flow perspective, it's going to be cash neutral. We obviously, you know, we have the closure costs and then, We sold the land and, you know, the party that we sold it to has obviously made their announcement. So from a cash flow perspective, it's neutral. On the fixed costs, clearly, we're going to be taking out stock that and it's about 40 million euros. 40 million of fixed costs a year, James, that we will no longer have to because of the mill not being there. We are confident that we can move the volumes away from stock that to the rest of our mills and obviously save those fixed costs.

Great. Thank you very much for that detail.

Thanks. Thank you. Now we're going to take our next question. Just give us a moment. And the next question comes Landry Jones from UBS. Your line is open. Please ask your question.

Hi, Jones. Just a quick one on DWP. I mean, we've seen decent import volumes into China in recent times. I'm just wondering what your view is in terms of how much of that is actually sort of fundamental improvement in demand versus, you know, the restocking dynamic. there's been quite a lot of that going into bonded warehouses and stocks have been rise. The import stats might be a bit misleading in that respect. What's your view there? Thank you.

No, I'm going to allow Mohammed to expand a little bit further. But from my side, no, no, it's not going into warehouses. The demand has been strong. Operating rates in China are the highest. They've been in many years. The demand has been particularly strong. This is not going into warehouses anywhere. In terms of, and as I say, I'll let Mohammed just talk broadly about the markets, but certainly things are more positive. The spot prices in China are now up to 885 in the last couple of days. You know, our mills are fully sold out. Frankly, we can't make it quickly enough. It's going well.

Mohamed, I don't know if you want to elaborate. Yes, I would just say if you look at the – well, firstly, operating rates have been very high for most of this year, and so that's consumed a lot of dissolving pulp. Secondly, if you look at the inventory levels of viscose through the supply chain and not calling out specific numbers, but they've been at very, very low levels, and that's keeping operating rates high through the value chain for viscose as well as viscose made, yarn made from viscose, and then textile made from viscose yarn. So everything that we monitor and that we see points to the pop being consumed for production of viscose. Very clear.

Thank you.

Thank you. Now we're going to take our next question. Just give us a moment. And the next question comes to the line of Brian Morgan from IMB, Morgan Stanley. Your line is open. Please ask your question.

Hi, guys. Thanks very much. Can I ask on speciality packaging in Europe and North America? Just give us a bit more color on the market there, what your clients or customers are saying and where your order books are. Are you seeing any green shoots yet?

Yeah, I'll allow my markets to talk a little bit more about their respective markets. But broadly speaking, we are seeing improvement, but it's not a sharp recovery. It's a gradual recovery. Yeah, with the benefit of hindsight, we are realizing that there was more inventory being held downstream than we had anticipated. Obviously, the macro factors obviously were as well, and the lower consumer demand, the higher inflation, all of those factors have contributed. So, we're seeing a progressive improvement. And certainly, as we get later in the year, we would expect that to continue. Mike, I'll let you talk specifically about North America there.

So, Brian, on the packaging side in North America, probably the best reference is about a ninth improvement in volume for orders quarter over quarter. So, we're seeing that steady improvement. although, you know, we're still a ways from full occupation. So I think that's the best reference right now, and we forecast that to continue in North America.

Yeah.

Thanks, Mike.

Marco? Yeah, it is. Thanks, Steve. In Europe, probably still subdued than what Mike is giving us from the U.S. We have a very specific European situation where there's still a lot of economic worry about how the war ultimately will pan out, what the energy situation will be over the winter, and how inflation will be tamed ultimately. Having said that, as you mentioned during your presentation, Steve, There are first signs of a very, very slight improvement, both on graphics as on some of the packaging and speciality segments. The flexible packaging in general has held up slightly better than, for example, container board and some of the paper board grades. But as I said, as you mentioned, it's certainly not a strong rebound, but certain positive signs are to be seen.

Okay, Brian. There you go. Thanks, guys. Thank you. Can I ask another question, if I may? If you could just give us a bit of sort of color into the board's thinking around the dividend or trade-off against the buyback debt levels. Could you just flesh that out for us?

Yeah. Look, I think on the dividend, we made a decision last year to resume dividends. because we didn't take the decision lightly. We did that because we were focused on repositioning our balance sheet. We think we've got a stronger balance sheet. And with that strong cash generation, we believe that it made sense to continue the dividend and reward our shareholders for their support. In terms of spec, obviously, we did a program earlier in the year. We've paused that for the time being. You know, we want to see how things evolve in terms of our market recovery. And, you know, we'll continue to monitor, but we're not doing share buybacks at the moment.

Very good. Thank you.

Thank you. Now we're going to take our next question. And the next question comes from Sean Angerer from Chronix Research. Your line is open. Please ask your question.

Good afternoon, Steve. Thanks for the time. First question relates to the European graphotype of molluscs. It's really a bit of an unfair question, but obviously there's been quite a bit of rationalization on the coated wood-free side, meaning the coated mechanical and the coated wood-free is probably a little bit weaker or much weaker. Perhaps you could give us a bit of flavor or quantify to what extent you think more capacity needs to come out of the market. That's my first question. Thanks.

Yeah, look, as we assess the market, in Europe and where we think it's going to stabilize that, you know, with the recovery that we're having at the moment. The market's going to be around 70% of what it was in 2022. You do the math and, you know, that indicates roughly about a million tons too much capacity. Obviously, from a SEPI perspective, we've got to focus on our assets, and we've got to focus on ensuring our assets are full. That RX, stock start, and if we ultimately close Lonergan, those can be moved to our other mills. So, based on where we think the market's going to be, and the capacity that we have, that will enable us to follow our machines in Europe. Now, perhaps your next question will be what comes next. But all of this conversion or additional flexibility that we're building at GratCon to make labels, web strength labels, effectively that machine is going to be full on labels, you know, when the project is complete. So, that's the equivalent of taking out another machine out of graphics. So, that's another 250-odd thousand capacity. So, you know, we're doing what we need to do to manage our assets. From a cost perspective, you heard earlier that StockStat is, you know, that's going to save us 40 million of costs. in the process of finalizing that, but that's two machines. And, you know, ultimately, if that capacity comes out, substantial cost savings there as well. But we're focused on filling our machines.

Okay, excellent, Steve. Thanks. I appreciate that. And then I just guess, turning to the other side of the coin is, I mean, if you look at the mix in Q4, I think Q2 was down about 8%. How are you guys thinking about pricing evolution going into 2024? Because obviously you've had some new demand that should sort of hang out. But at the same point, you are seeing deflation coming through on the cost base. I mean, is there still going to be a steep correction in pricing, or is there the argument that, you know, for example, one of the Uncanny Woods repairs announced a price increase recently citing the cost base, which seems a bit contradictory. Maybe give us a bit of a feel on that. Thanks.

Thanks, Sean. Obviously, it seems to come down. in the quarter that's gone by. Yeah, it's difficult to forecast where prices will go in future. And, you know, there's lots of negotiations underway. So yeah, I can't comment too specifically on that. But what I would say is that, you know, we want to protect our pricing for as long as possible. have bottomed out now, as I indicated in the investor presentation. So, you know, we want to protect our margins and in our negotiations, you know, the message we're sending out is the costs have now stopped dropping and are starting to go up.

Okay. Got that. Thanks. And then if you go to the DP side, Steve, I think there's a comment on the cross-inflation impacting the DP business. I'm assuming that's flagging words. Maybe if you could just expand on that. And then I guess sort of just linking to on the BSF front, yes, I mean, utilization rates are high, stocks are low. But you still see PSF prices going backwards. Maybe you could give us an insight into how we should read that. Thanks.

Yeah, your comment is right. In South Africa, whilst we own many of our forests that supply the wood, particularly at Saiko, we still buy a lot of our wood and, you know, similar prices just continue to rise. So that, yes, that's what we were referring to. I would speculate longer term that wood prices will continue to be the pressure because it's a sought after raw material. What's very important for us is to increase our forestry footprint in South Africa and You know, we periodically buy smaller plantations, and we'll continue to do that. You know, on the markets itself, once again, I'll let Mohamed elaborate further, but VSS prices have come off a little bit, but, you know, when you compare it to the alternative fibers, cotton prices, the gap is still there. much, much larger than historical norms. And it's come off a little bit in recent weeks, but we're certainly still seeing strong demands for dissolving pulp. And that's why you saw the movement upwards this week. The prices that are getting offered out there in China in the marketplace are higher than than even the list price that you saw, the 885. So we see that as a positive. Mohammed's already talked about the fact that inventory levels downstream are relatively low, demand is strong, and we're getting pushed for more volume. I'll hand you to Mohammed just to say more.

Yeah, Steve, I would just add that, you know, the VSA price has been more flatlined. And with the volatility that you've seen from cotton, it's actually encouraged substitution of fiber away from cotton and more towards viscous staple fiber, which is why the inventory levels have remained very low, even through the seasonally slow time, and operating rates have stayed very high. I think the producers have probably purposefully tempered their pricing expectation, because if you look at the gap between cotton and VSCO stable fiber in terms of pricing, there is room for some upward movement. But it has helped the demand for VSCO fiber and in turn is all involved. Thanks, Mohamed.

Thanks, George. And then just last one, in terms of the effective tax rate or perhaps cash taxes, can you give us an idea on that, please?

Yeah, okay. So our effective tax rate for the year was just over 20%, it was 22%. And so we benefited from investment allowances that came through on the cycle project. We won't be, and we utilized all our assessed losses in South Africa, also because of that investment. So we anticipate the price to increase into 2024. And the tax paid for the year was 56 million. We anticipate it's going to stay at that level in terms of tax pay going forward.

Okay. Thank you. That's my side.

Thank you. Now we're going to take our next question. Give us a moment. And the next question comes to the line of Brent Madder from ABSA. Your line is open. Please ask your question.

Yeah, thanks very much. So you referred to the graphic paper market as not potentially having a V-shaped recovery. I just want to refer to the U.S. quarter-on-quarter improvement in demand there of 24%. I don't know if that's just a base effect, but I don't know if you can just talk around the better improvement in graphic paper demand in the U.S., And my second question, if I can, just extend the discussion on dissolving wood pulp. Yes, demand is strong. I just wanted to know what your views are of where you think the dissolving wood pulp price will average during the financial year. The estimates are out in the market, I guess it's between the sort of $9.15 and $9.20. I just want to know if you feel that with the strong demand that there's upside to those estimates out in the market. Thanks very much.

Yeah. The graphic paper in the US, and Mike can give me specific, but bear in mind it came off a very low base. The operating rates, Mike, in Q3 and Q2 were, you know, were in the 50s somewhere, right? It was, I don't recall the specific percentage, but we're coming off, you know, we're coming off a low base with that incremental. I don't know if there's anything you want to add to that.

No, Steve, I really don't have anything to add. They did come off a very low base, and we did have, you know, as you referenced, about a 24% improvement quarter over quarter. We're still obviously not back to Q4 22 levels, which would be full occupation.

Yeah. So it continues to rebound, and I guess, you know, we've alluded to it on the call, but it's clearly recovering at a faster pace than we are seeing in Europe, for example. On your second question, you know, it's hard to give a specific forecast. All we can talk to is the market dynamics. And on the positive side, you are seeing a recovery in China. You know, lower inventories downstream. You are seeing a recovery on the supply side. You're seeing a recovery in paper pulp prices. The global economy, you've got to believe, will start to recover from the challenges that it's had in the current year. And there's no new supply coming on board. For all in all, you know, the short-term dynamics are positive. So, whilst it's difficult to give a specific estimate, I think it's fair to say that we think the prices will be higher than the current levels in the new financial year. And, you know, independent industry experts are all pointing to numbers, you know, well into the 900s for the new financial year.

Just one comment on the supply side. You know, there have been a public announcement of a closure more recently in the US. So that will take out some capacity as well. And then there has been a restart. Again, it's public information out there in Brazil. But the restart has not gone as well as I guess it would have been expected because we're not seeing any of that product make its way into the market. On the supply side, there's also some production.

So net-net, demand continues to grow and there's not a lot of new supply coming. So net-net positive. And by the way, while we're on this topic, if we look beyond the current financial year, the medium term outlook is even more positive because demand continues to grow and we're not aware of any new capacity coming. So net-net, you know, if you're looking at two or three years, we're even more positive about pricing. All right. Thanks very much.

Thank you. Now we're going to take our next question. And the next question comes from Meggie Chang from Indosuisse. Your line is open. Please ask your question.

Yeah. Hi, gentlemen. Thank you very much for taking my questions. Since next year, the CAPEX and there will be also construction costs. Do you have a view that whether operating cash flow can fund both CAPEX and construction costs? Then my second question is about the inventory in packaging and specialty paper. Could you give us some like how many months of inventory in the market in the U.S. and Europe? Then the last question is on the net debt. Now we are really close to 1 billion. Are you done with the ? Thank you very much.

Yeah, just taking each of the questions in turn. Obviously, we've got higher capex in the current year because we're funding the big project at our Somerset Mill. You know, taking that into account, and if you're comparing You know, the current year as a company, you know, you are talking about an additional 120 million of capex. So that is going to lower our cash generation year on year, if you were to compare it. On top of that, we do have the closure of, potential closure of the Larnacan Mill that we referred to earlier on this call. So that would be a negative cash outflow and that you need to take into account. The broader question on net debt is yes, we are committed and we will be disciplined. Our capital priorities remain intact. We're not committed to any other big projects at this point in time. We want to see the Somerset project through to completion. So we're being very disciplined. But taking into account the things that I've described, you would have likely have an outflow in the current year. The inventory, you know, it's hard to be very specific about the de-stocking. And, you know, we keep thinking, you know, it's close to the end, but it's clear, it's hard to call the exact ending to that destocking process in the packaging segment. All we can say is it's gradually getting better and better, but it does look like Q1 will continue to be impacted for the reasons that we described. There will be an improvement, but it's not going to be B-shaped, and we said that a few times on the call.

Yeah, that's helpful. Thank you very much.

Okay, thank you.

Thank you. Now we're going to take our last question for today. Just give us a moment. And the question comes from . Your line is open. Please ask your question.

Hi, thanks for taking my question. Just a quick one on your guidance for fiscal Q1. You got a sequential decline and you singled out the impact of the three shots in the quarter for 40 million. Is the sequential decline entirely due to that factor or there is more to it?

Look, it's still early, we're assessing it. I think the performance, you know, is we're seeing a recovery in the market. But what I will point towards is the and I've said it a few times on this call that costs are coming off the lows now, and costs have turned. So, you know, net net, I'm not going to give you a specific number. But those are the big factors at play, you've got Costs starting to rise again, but the big factor is the shuts that are referred to. We need to see the shape of this recovery and demand that we're experiencing, but net-net, you know, taking that all into account is, you know, is why we came out with the guidance that we did. Okay. That's very clear.

Thank you. Thank you very much.

Thank you. There are no further questions for today and I would like now to hand the conference over to Steve Beeney for any closing remarks.

Thank you, operator. I just want to take the opportunity to thank everybody for joining us on the call today and look forward to our Q1 results in three months' time. Thank you very much.