Sappi Ltd S/Adr

Good day and thank you for standing by. Welcome to the Financial Results Announcement Q1 2024 webcast and conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please be advised that today's conference is being recorded. I would now like to have the conference over to your speaker today, Steve Binney. Please go ahead.

Thank you. Good day, everybody. Thanks for joining. As always, I'll move through the investor presentation, calling out the page numbers as we move. And I'm going to start on page three, which has some of the highlights for the quarter. Firstly, our EBITDA was $156 million, which was in line with our guidance. that we gave at the end of the last quarter. Overall, we were satisfied with those results against the challenging global macroeconomic environment. We did see gradual recovery across our segments. Graphic paper volumes were higher quarter on quarter. But obviously to point out to you that we did have some big shuts. scheduled shots and those were successful for us. But naturally there were lower volumes as a result of that and it impacted our profits by $45 million because of the lower volume. For the first time we've included forestry fair value adjustment in our EBITDA. That's something that we took a decision because we regard forestry as an integral part of the business. Obviously, the timber is sold into our operations. And because of the adjustment to the forestry valuation, it was pushing up the cost. and we felt it was appropriate to reflect the fair value adjustment to offset that higher internal cost. The mills in Europe, Stockstadt and Larnaken, we had announced previously, obviously, that we were looking to close those. Those permanently ceased production, and we will start to see the benefits of that in terms of lower costs later in the financial year. Moving to slide four, the product contribution split. On the left-hand side is the EBITDA, and obviously the last couple of years has been pretty volatile because of obviously COVID, and then we had the global supply chain challenges, then we had the bounce back from COVID, and then more recently the the macroeconomic challenges. So it has been a little bit up and down. But on the right-hand side, I think in terms of our strategy, you can see that we continue to push the business towards the higher margin growth segments. Our percentage of sales coming from graphics continues to continues to come down and that will be the same going forward, particularly obviously after the closure of the two mills and the big projects that we're undertaking at the moment to convert capacity both in Somerset and in Gratcombe. Moving to slide five, the earnings bridge. We thought it was more relevant to compare Q4 with Q1 to reflect the relative performance. Sales volumes negatively impacted, but that's because of the shuts. The underlying performance is positive across the segments. Included in variable costs was an offset of some once-off Government energy related subsidies in Europe of about 17 million euros. And then the plantation fair value adjustment is on the far right. We have been getting some questions today about the split of that. So I'm going to give you the splits. Pulp segment was 10. packaging 14 and graphics two to make up the split of that 26. Then moving to slide six is the variable cost movements. This is consistent with what we've talked about. We saw the peaks in the prior year and then starting to come down across the board through towards the end of 2023. And in Q1, we did see a little bit of a pickup. And all in all, bearable costs were 5% up quarter on quarter. Then slide seven, as our net debt, we remain committed and focused on keeping a tight control on the debt. Obviously, there was an outflow of cash in the current quarter, which I think is on a future slide. And then on top of that, we had an adjustment because of the movement in the exchange rates. Ironically, the dollar had weakened against the euro, but Subsequent to that, it's obviously come back. But in the quarter, there was I think it was 69 million impact because of that. The page 8 has the debt maturity profile. And again, I think it's a good picture. In the 2024 numbers, which I'll focus on, we've got two maturities in the current year. In what we call SDH term date of terms loans in Europe that's maturing in the current year and we're in the process of finalizing that refinancing so there's no concerns there and in terms of South Africa included in the 164 there's about 1.5 billion rand of bonds which are maturing soon and we're confident that we'll be able to refinance that. Moving on to slide nine, which is the cash generation on the left-hand side. The 69 I referred to earlier, actually I made a mistake. The cash generation, utilized in the current quarter was 69 million, and that was a seasonal thing, that's normal. The capex is reflected on the right-hand side, and as consistent with prior quarter, which we referred to, we expect it to be around 500 million for the year. Turning to slide 10, the focus on a disciplined capital allocation remains, and you can see our priorities. In the far right-hand column, some of our targets for the year and some of the things that we're working on. Obviously, we continue to focus on our sustainability targets, our journey towards the science-based targets. So there's some projects there which are on track we remain focused on getting our debt below a billion. Obviously, the current year will be impacted negatively by the shuts in Europe, but in a longer term, once we've completed the projects that I referred to, the debt will come down. Then, in terms of profit improvement and growth, We've obviously got two nice projects underway. BrackCon basically converting one of the machines to labels and giving it the functionality to make wet strength labels. And then we've got the conversion and expansion of Somerset PM2. That's going well so far in time, on budget. And we included in the CAPEX number, the biggest chunk of the CAPEX relates to this project, 154 million. Moving forward to the segmental overview. And firstly, on the product segments, slide 12, the quarter-on-quarter tons were down, but that was for two reasons. One, we had the big shut. that came through. And then the other reason was the fact that we had high volume sales at the end of last year. So our inventory levels going into the quarter were less. The underlying demand is very good. And we expect that to continue to be so. The DP market prices were in a fairly narrow bend in the quarter, subdued ahead of the Chinese Lunar New Year. That's normal. Having said that, the last week or two, it's crept up a little bit. I think the latest prices in China, spot prices are $895 a ton. So that's encouraging. In this period, that's encouraging. and obviously the fact that there were the lower volumes that would have impacted on margins. Moving to the packaging segment, once again impacted by the shuts. In Gurdwana was an extended shut because it was an 18-month period. It's a product category that we make there, container board, which is very profitable for us. So that would have had a negative impact on margins. Having said that, after a slow start to the year, we are seeing more encouraging signs coming out of South Africa. North America, the paper board demand is showing signs of recovery and volumes were up. And in Europe, although volume is a little bit better, the underlying demand still remains sluggish there. And then in page 14, graphics showing signs of a muted recovery. Volumes were up. And you see the benefit coming through into the margins. And then, you know, on top of that, we concluded the closure of the Stockstack Mill. the carouseling of that product to the other mills has been successful. And then more recently, we concluded the consultation process for the closure of Lanican. It did cease production, and we are similar to Stockstadt. We're moving those volumes to our other mills. Moving to the geographic regions on slide 15. All in all, looking at the volumes, Europe, as I said, a slow recovery, volumes up, but it's not a sharp recovery, but things are gradually improving. We've had to give up a little bit of pricing, but it held up relatively well. In North America and South Africa, both of those regions impacted by the shock. The underlying businesses are continuing to improve and selling price is pretty good, actually. You can see the impact on margins graphically on slide 16, Europe a little bit better, obviously coming off a low. North America being impacted by the shock, but as I said earlier, underlying, demand for paper continues to recover. And in South Africa, you know, good margins despite the big impact from the shut. Slide 17 has the strategy or strategic pillars. And, you know, once again, I'm not going to go through this in detail, just highlight a few key items. driving operational excellence is critical for us and particularly relevant now as we close the two mills in Europe and we move that production, that enables us to fill up the remaining mills. As the demand for our product continues to recover in all the regions, it means that then the mills become full once again, and that enables you to achieve better operational efficiency rather than stop starting the whole time. And then enhancing trust, we're very proud of our BE certification, and we continue to believe that our sustainability positions gives us a strong competitive advantage across all the Pyrrhic segments, but in particular in the dissolving pulp space. And then in terms of growing the business, we've got the two projects that I talked about, labels at Gratcorn and the Somerset conversion and expansion. And then in terms of sustaining financial health, ongoing focus on costs and never losing sight of the long-term target of uh net debt at a billion slide 18 uh esg uh we continue to focus on this and and and rethinking what we do and and and and how we do it um you know there's a number of awards that we've achieved um maybe two to call out uh the the bbp the bbb double e um certification came through once again and we're at the highest level, level one. And we've been there for a couple of years now. So we're very proud of that. And then on the CDP front, yesterday actually, we got feedback that our climate change score had improved and our water score. So that's more good news on that front. Then turning to the outlook. Page 20. Obviously, we're still facing the challenges of the weak global consumer environment and high interest rates and low economic growth. Having said that, order activity is improving, albeit slower than we'd like, but it's improving and it's progressive. And the DP demand remains robust. We will complete the restructuring and closing at Larnacan Mill. Just to remind you all that there's over 100 million euros of savings, fixed cost savings, that we should achieve because of the closure of these two mills. Obviously, you're not going to get the full benefit in the Q2. You'll get a little bit of the benefit. but ultimately when we get into the second half of the year on a run rate basis, we will achieve those savings. And on top of that, obviously, as I said earlier, it enables us to fill our other coated wood-free mills in Europe, and that leads to efficiency benefits. Then in terms of slide 21, cost inflation remains a risk. It's stable at the moment but obviously it remains a risk. We've got a little bit of risk on costs related to logistics because of the various challenges that are out there including the Middle East conflict and Obviously, that pushes up the costs a little bit, and it also creates a little bit of pressure in terms of securing capacity on the ships because they're on the water longer. The CAPEX I've spoken about, and then in terms of our guidance for Q2, we say in the announcement that our EBITDA for the second quarter will be in line or similar to the first quarter. And that's obviously despite the macroeconomic uncertainty. What I want to add to that is that obviously in the first quarter, we had the benefits of the once-off environmental subsidies in Europe. which was, as I said, 17 million euros, $18 million. And the other number that was in there was the forestry fair value adjustment. Now, our estimate for Q2 on the forestry fair value adjustment is that it will be lower, at least half of what the Q1 number is. So if you back that into the numbers, both the once-off impact of the subsidies and a lower forestry fair value, that will tell you that the underlying business is better in Q2 to enable us to achieve the even or similar earnings to Q1. Operator, that's me finished going through the deck. I will hand it back to you for questions.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We will now go to your first question. Just one moment, please. And your first question comes from the line of, James Twyman from Preseant. Please go ahead.

Yeah, thank you very much. I've got three questions, if I may. The first one is European prices, paper prices are holding up pretty well, whereas they do seem to be falling in the U.S., Can you talk around this, given that the U.S. market is clearly seeing better volumes than Europe, and therefore why it's not holding up as well as Europe? Secondly, I think the key benefit from the closures is keeping the volume at the new mills where they'll be producing. Given that they've now closed, could you give us some idea of what sort of percentage of the volume you've managed to keep? or what volume you expect to keep. And then my third question is the cash cost of the closures. I think you were talking at around 150 million for the two of them this year. Is that still broadly what you're expecting? Thanks.

I'll give you brief answers on the pricing in the US and Europe. And I'll allow Mike and Marco to... go into a little bit more detail. And then just give you some feedback on the volumes and then the cash closure costs. Yeah, in terms of pricing in Europe, I would argue that both regions, the prices have held up pretty well. Better than we feared. Having said that, the US prices had held up better over a period of time. So I suppose it was always natural that a little bit would have been given up. Having said that, they are holding up better. In Europe, you have seen announcements across the industry and the various players have been very disciplined at keeping prices high. You've also got to bear in mind that the costs on a historic basis are still relatively high. So maybe on that, Marco, do you want to start on Europe's pricing?

Yes, Steve, thank you. And I think you covered it pretty well. The cost pressure in Europe will continue also in the next quarter as we see it, both on the pulp side as on the chemicals side. And therefore, for us to keep a healthy margin, we will need to keep our prices at least stable. We've slightly increased them to at least sustain these margins. So that's one thing. The other part, of course, playing in Europe is that after the closure of the two mills, Stockstad and particularly Laanaken, the balance between demand and supply has tightened somewhat. And that's being felt in the market. Lead times have gone up basically from December onwards from fairly low levels. But it's good to see and encouraging to see that lead times are getting slightly longer, which is – which is supporting the pricing. So that's from a European perspective.

Yeah. Sorry, Mike, but just before you answer, the prices have actually been pretty stable in North America. I'm not quite sure, James, where you got that, but it has been pretty stable in graphics. But, Mike, maybe you want to elaborate further, yeah.

I guess the only thing I'd add is overall prices have been very stable in North America. Graphics has held up pretty well. Packaging down slightly as the volumes improved, but certainly not something that's allowed.

It's actually on the packaging side, volumes have gone down a little bit in North America. Volumes are up on packaging, prices down just a bit. Correct. And then in graphics, pricing's been stable. Then, in terms of the carouseling in Europe, so far, so good. Stock start, we've been able to move all the volumes across, and Lanik and the early signs are very good, and we're, Marco, we're confident of keeping all the volume.

Yeah, I think the only addition maybe, Steve, is that obviously we'll need to create the capacity to keep the entire order book, but... It's looking very promising, and we've been very focused and very close to our customer base, so we're very encouraged with the first results.

Yeah. And then in terms of your other one and the cash closer costs, obviously we're still finalizing it, but, yes, we stick to our estimates that we gave you last week.

Great. Thank you very much. Lovely.

Thank you. We will now move to the next question. And your next question comes from the line of Sean Ungerer from Chronux Research. Please go ahead.

Good afternoon, guys. Thanks for the time. Hi, Steve. Just in terms of the change in accounting in terms of the fair value gain and the forestry assets, obviously you've given us guidance for Q2. And if I just sort of compare, you know, looking back to 2023, even though it wasn't treated as going through EBITDA, which is quite chunky, about $128 million. I think, you know, just looking for the rest of the year, are you in any position to sort of giving us a feel, you know, sort of how much less or how much more to be relative to that? That's my first question.

Yeah. Look, I'll let Alex elaborate further. It's obviously we're trying to predict the future. Last year, wood prices rose very sharply, and that's why last year was much higher. We're not seeing the same rises, but Alex, maybe you want to give more detail.

Maybe just in the short term with the NCT fire, there's been a reason why the prices haven't risen, but I think our anticipation is towards the end of the year there will be a price increase again, which would obviously start moving the number.

The interesting thing, John, as I was saying in the In the deck, you know, in prior years, you always had the higher charge coming through, you know, to the paper and the pulp businesses because your forest valuation was going up all the time. And now you're getting a true measurement of the underlying profitability of the South African business by including a short 100%.

And as you're just going to Europe, I mean, sort of leaning on for James's question, but if I just look at the index pricing at least and what I can see for Europe, it looks like Cote d'Ivoire is down 1% yesterday. It's kind of down 3% yesterday, whereas pulp is sort of up between anything and 6% and 10%. I was just sort of wondering, outside of the closures, which I do agree are obviously going to provide significant upside in terms of fixed cost reductions, are there sort of any other levers we could sort of expect? And sort of what I'm asking or getting at is, you know, you've obviously gone to a bit of cost risk in Q2, and, you know, if you strip out the one sort of energy rebate you received in Q1, it looks like the possibility in Europe could come under a bit of pressure in Q2 relative to Q1.

Yeah, I think the big driver of the recovery, right, is, you know, we anticipate volume demand to continue to rise across both graphics and in the packaging segment. So the other big issue you've got to take into account is higher volumes. And whilst you say, yes, pulp is up a little bit, there are other costs. you know, like energy and chemicals that maybe are not rising by the same extent. So obviously that helps a little bit as well. So all in all, you know, with the fixed cost savings, the higher volume, you get better efficiencies in the mills because the mills are full. So that boosts, that helps with variable costs as well. So all in all, You know, if we take that all into account, on an underlying performance basis, we see an improvement in Europe in the second quarter.

Okay, that's pretty useful, Steve. Thanks. And then just around your commentary in terms of packaging and threshold volumes lagging in Europe, I'm just trying to sort of tie that into, you know, for example, Smurfit had a pretty positive update in terms of the Q4 volumes for packaging sort of being flat in Europe in Q4. So I was just sort of wondering, you know, that coming from a SACI perspective, is that linked to the sort of container board exposure that you guys have? Or is it perhaps another sort of bucket that is causing that underlying demand to be quite statutory relative to, say, North America?

Yeah, you quoted one player in the market, but if you look at a lot of the other results of a lot of the other players in the space, there's been pretty challenging results that are coming out. And it's clear that across the segment, across a number of the categories, there are still challenges. And You know, a lot of it, obviously, is the economic situation. I know we sound like a stock breaker, but this is probably the one area where you're still seeing high levels of inventory working its way through. So, you know, it's still uncertain. We are seeing gradual improvements, but it's still uncertain. Marco, I don't know, is there anything specific you want to add?

There's maybe one additional element that plays here, and that is the still slightly unpredictable political area where a lot of emphasis is being put on the legislation around packaging. We are still hopeful with the negotiations that are going on right now between the Commission, the Parliament, and the Council that should be finished in the next – four or five weeks that it will come up with a workable solution. But that has played an additional role, that uncertainty around the legislation. I'm confident that we will get to workable solutions and therefore see more confidence in the market.

Okay, excellent. And then, sorry, just going to sort of board dynamics in the U.S., Steve. I mean, obviously SAP is going ahead with the project quite far down the line, and one of your competitors has been quite cautious. I mean, just sort of, is there anything to sort of read into that? I mean, are you pretty happy with the sort of supply-demand fundamentals within the U.S. from that perspective still? I don't know if there's sort of any antidote or evidence to provide or insights on that.

No, it's encouraging. Demand is picking up, and when we look at our machine development machines in North America, as we're into Q2, we're substantially reducing any downtime. And in fact, our Somerset machine is full now once again. So order activity is looking good and we are encouraged. We've obviously given up a little bit on pricing, as Mike said earlier, but generally looking good, Mike. Anything you want to add to that? All positive.

All positive. Okay. And then, sorry, I've got two more, if you don't mind. In terms of SA, obviously, there was quite a bit of impact on the fixed cost base due to the shuts. Sort of heading into Q2, how should we think about that fixed cost evolution?

Yeah. Clearly, it had a substantial impact. Alex, in fixed costs, Yes, significantly.

And I want to remind you that these, Sean, this shut is an 18-month shut. So we didn't have it in the previous year. And we've completed all of that successfully. So, yes, we will see costs, I think, closer to the previous quarter as we go forward.

Okay, great. That's very useful. Thanks. And then just last one, in terms of the outflows in the next couple of quarters with what's happening with dividends and the closure costs, is it fair to assume that CapEx for the year is going to be quite weighted to the second half of the year, not given only 75 was spent in Q1? Or is there any sort of guidance you can give us in the next couple of quarters?

Yeah, I'll let Glenn talk about the outflows related to the shuts. But certainly on the CapEx front, yeah, we maintain our guidance. The 500, it still looks like it's still our best estimate. And, yeah, you're right, it is weighted towards the back half of the year. But bear in mind, as you complete a lot of the work, particularly on Elevate, more and more costs will come through. But there's nothing unusual there and that's how we envisaged it was going to unfold.

Sean, you're right. We'll be paying the dividend in this quarter, so our quarter two, and then the bulk of the restructuring costs will be paid in this quarter as well. So we'll have a sizable outflow. and then start collecting it or recovering it rather towards the end of the year.

Okay, awesome. Appreciate the time, guys.

Thank you. We'll now go to the next question. And your next question comes from the line of Brent Maddle from ABSACIB. Please go ahead.

Yeah, thanks very much. Just one question from my side. I'm just trying to reconcile the EBITDA on pulp, which was at $64 million in Q4. I know quarter and quarter is not always a great comparison, dropping down to $53 million. And really what I'm factoring in here is the fact that the volume has dropped from Q4 of $414 million to $335 million. Obviously, that's factoring in in the downtime due to the maintenance. My understanding is that the pulp prices that you would have realized over this period would have been less than the comparable. I stand to be corrected. I would assume it's probably around the $850 odd level. So volumes down, the underlying prices in EBITDA was down, yet your EBITDA goes from $64 to $53. If I include your fair value gain of $10 million, I think you referred to in the pulp side $10 million there, effectively drops that down to 43. I guess my question is, it seems like pulp held up better than that line of variables would have suggested it should have held up.

Yeah, the one number you quoted there that I would disagree with was your volumes in the total segment. Yeah, 3T5. Sorry, you're right. You're right. It is correct. Yeah, I'm trying to pinpoint, using your math, where you're getting a difference. I mean, obviously, the volumes are less. You've taken that into account. You've brought in, in terms of the fair value adjustment, your pricing assumption is right. It was around those levels. So at all, your logic seems, I'm throwing it at Glenn, anything that he's missed?

No. Your conclusions are right. It was a better result.

Both held up quite well.

So I believe an anomaly as to why it held up. I guess that's what I'm trying to get to.

The one thing you haven't got is BCTMP. Someone's pointed... Embedded in those numbers is volumes for BCTMP and And, you know, it's about 54,000 tons a quarter. And that pricing was better. Okay. And that accounts for some of the difference that you were, probably most of the difference that you were referring to. Perfect.

Understood. Thanks very much.

Thank you. We will now take the next question. And your next question comes from the line of Brian Morgan, R&B, Morgan Stanley. Please go ahead.

Hi, guys. Good afternoon. Let me just dive into packaging in Europe. If I'm not mistaken, if memory serves me correctly, capacity in that business is about 700,000 tons. We're running somewhere close to 450 now at the moment. You know, even during the boom days in 2022, 636, as far as I can see, we're still some way off that capacity level and certainly your own internal capacity utilization level is really low and you've never really gotten it full before. Is it not time to think about some rationalization in that business?

Yeah, Brian, just remember that some of that capacity is swing capacity. So, for example, Maastricht, You know, we can make a board or we can make a graphic paper. So when we talked seven, that was obviously our ultimate goal. It's not that the Maastricht machine is going to be empty, and particularly now after the shuffling around of the capacity. And, you know, and it will be the same even with GratCon as we build up on – labels at Gratcon. I think it's not that we feel the need to rationalise. We think there will be a recovery. Like we've seen elsewhere, it's just taking longer in Europe than the other regions. And that's partially the overstocking. We get the fact that that's close to an end. But the the economic situation in Europe is tougher. So we're not looking to take any capacity out at the moment. We want to ramp up the volumes. We want to continue to do that. But if you think about the entire SAFI business and where we've come from over the last six months or so, everything is getting better. This is the one last area segment that is falling behind and But we are confident that demand will continue to recover and we will start to fill up those mills and machines.

Okay, cool. Thanks, Steve.

Thank you. Once again, if you would like to ask a question, please press star 1 and 1 on your telephone keypad. We will now take the next question. And the question comes from the line of Andrew Jones from UBS. Please go ahead.

Hi, Steve. Thanks for the chance to ask a few questions. I just want to get a bit more color on the dynamics in each of the divisions. I mean, I model on a product basis, so pulp, packaging and then printing and writing papers. Can you just give us an idea for your best guess on where volumes go in the second quarter, the broad sort of quantum in terms of pricing that you're expecting, given we're already nearly halfway through the quarter, and some of the major pricing drivers, I'd say cost drivers. I mean, obviously you've called out pulp rising, especially in Coated Wood 3.0. But can you talk about some of the other cost drivers and what you expect for 2Q, if that's okay?

Look, I obviously can't get too specific on pricing. Look, in terms of the broad markets, what you're seeing is that graphics slowly picking up. You've seen the improvement in the first quarter. Volumes continue to get better. from a margin perspective, the fact that we're taking out the fixed costs of the two mills is going to boost profitability for graphics in addition to the higher volumes generally. Packaging, feeling a lot better about South Africa. You can hear our confidence in the North American market, a little bit more sluggish in Europe, but it is improving. And then in pulp, On the volume side, we don't have the shut again. So, you know, we're back to normal production and, you know, we're fully sold out. So you're going to get the volume benefit. DP prices have, you know, they went down initially. They've picked up again. You know, if they stay at these levels for the quarter, you know, you might have a slight slight positive on the pricing for DP, you know, if you look quarter on quarter. In terms of the packaging and graphics pricing, I think it's fair to say that they've held up better than expected originally, and that's something we want to continue to focus on. And so far they're holding up reasonably well. On costs, you heard from us earlier, maybe there's a little bit of upside risk on pulp, Glenn. But generally, reasonably stable, actually. We're not talking sharp rises in costs. So when you bring all that together, that's why we say to you that the underlying performance of the business, although the EBITDA will be flat for the one source that I talked about, the underlying overall is better.

Okay. And just to follow up on the packaging side, I mean, I was slightly disappointed by the volume part of that. I mean, it was a fair bit lower sequentially when, you know, obviously we were, I guess, hoping for gradual improvement. I think I'm just wondering what sort of, number you think might be realistic for volumes on the packaging side given the improvement in North America that you're calling out and slight improvements in Europe and so forth? I mean, should we expect much of a jump or is it like a sort of gradual pickup?

Yeah, bear in mind you heard from Mike earlier North America was up, right? South Africa Nebraska was down for the reasons that we talked about. We had the shut, an extended shut, and we went in Alex with lower inventories, right, as well.

And we had fairly low demand in the beginning of the quarter. As you said, it's starting to pick up, but it was low demand.

So, yeah, I can't give you specific numbers, but I'm anticipating improvement across all three regions.

Okay. Okay, thank you.

Thank you. We will now take our final question for today. And the final question comes from the line of Peter Ozovic from Saran Capital Management. Please go ahead.

Good afternoon and thank you very much for taking my questions. I just wanted to ask on a bit higher level, when you're looking at the DP business, obviously you have significant investments involved, in this business, and then we had COVID, then 21, then 23. So it's very difficult to see a quote-unquote normal year in the DP. So how should we think about this business EBITDA and cash flow potential going forward? All cyclicality notwithstanding. That's my first question. And then just on the cash items, if you could please comment on the expected level of cash taxes this year. and kind of steady state CapEx beyond the guidance for 2024.

Yeah. Yeah, you're right. There was a lot of noise in the DP volumes in prior years. You know, we had COVID and then we had, you know, obviously some production challenges. the volumes will continue to pick up. And I'll allow Alex just to talk about production, particularly at cycle, because it's obviously the biggest mill. So we are expecting margin improvement and everything we make gets sold and we're fully sold out. So, but Eric will expand a little bit further on the production at SAICOR in South Africa.

The cash taxes. So, our cash taxes for 2023 were just over $50 million, and we benefited from the investment allowances in South Africa on the SAICOR upgrade. This year, 2024, we're not going to have those investment allowances, so we're anticipating that those cash taxes will increase above that. I can't give you more than that.

And then in terms of the steady capex, backing out the big projects, obviously, we, through the combination of the maintenance capex, the sustainability commitments that we've made, we estimate that that's on a run rate basis is about $350 million.

Alex, you want to talk about production? Maybe briefly. What we've seen through the quarter and in the last couple of quarters is that we're gradually stabilizing them all. It's a matter of having spent money on the areas where we've had instability. For example, We still have ESCOM disruptions, and we've managed to do quite good work there to minimize that. And then, obviously, also just on the liquor circuits and the areas where we've had a concern. And as a result of that, we've seen several production records being broken. Obviously, one has to do that consistently, but compared to a quarter ago, we are performing much better in that regard. So we'll see volume growth from a production perspective.

Yeah, and it continues to improve, and we're very pleased with the progress that we've made.

Thank you. This is very helpful. But on this front, should we think about it as sort of 300 million, 250, 350 million over-the-cycle business when all the production issues are resolved, or...? What kind of brands should we have in mind?

Yeah, we estimate that through the cycle, based on what we think is a normalized price for DP and where we think costs are going to be, that this business can make EBITDA margins between 25% to 30%.

Okay, that's helpful. And just following up on the 350 steady state CapEx, can you give us a sense how much of this relates to different segments, especially to graphics?

We don't split up. Yeah, that's not a number that I have here. No, sorry.

We don't split up our CapEx according to our product segments. We split it up according to maintenance, environmental capex and expansionary capex.

Right, but would it be fair to say that the graphics have disproportionately lower portion of this capex compared to revenue EBITDA or the traffic the same?

Yeah, well, look, you've got to look at the various models, right? You know, we still have a number of graphics models. you know, in Europe and obviously still in the US, we certainly have machines in the graphic space. South Africa at least so. And in South Africa, it's predominantly almost entirely in the pulp and packaging segments. But from a maintenance perspective, you know, we still have some big mills that are in graphic space. We've got, you know, we've got Gratcon. We've got some of Somerset. But we don't give that specifics breakdown according to TPEX, according to segment.

Thank you very much.

Thank you. I will now hand the call back for closing remarks.

Yes, thank you very much. Thanks for joining us today. And we look forward to discussing our Q2 results in three months' time. So thank you very much.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.