Sappi Ltd S/Adr

Good day, everybody, and thanks for joining us. As always, I'll go through the presentation, calling out the page numbers as I move through. And I'm going to start on page three, which is some of the key highlights for the quarter. Overall, we were pretty pleased with the quarter, a good set of numbers, good start to the year, ahead of expectations both internally and externally. So we're obviously pleased with that. Segmentally, the pulp segment delivered another strong performance. We continue to see good demand. Our mills are fully sold out, and we continue to be optimistic about that business going forward. Graphics, good quarter, good margins. We did get cost savings. I'll go into more detail on this. But overall, very satisfied. Packaging was more difficult, but there was some specific unique circumstances there. And once again, I've got a slide on that, which I'll go into. Having said that, profitability was better than a year ago. So obviously pleased there. The other aspect of the results is that despite the higher capex, I'm pleased to say that our debt leverage ratio did come down to 1.9. Obviously, we knew it was going to go up at the end of last year, and obviously, as we complete the CAPEX projects in the next quarter, it is higher. But all in all, it's as expected, and we would expect it to come down significantly once the projects are completed. Slide 4, which is our year-on-year EBITDA bridge, always good to see lots of greens on the page. So we're pleased there, volumes higher and a favorable pricing mix, primarily pricing obviously driven by dissolving pulp, which has seen further increases throughout the year. But generally, prices have been better than we had anticipated. We had cost savings. both on variable costs, raw materials, predominantly linked to pulp, and I'll talk about that on the next slide, and then fixed costs, also savings. And you'll recall we obviously closed Larniken last year, and we get the benefit of the fixed cost savings there. So all in all, a pretty pleasing set of numbers. Slide five has the input costs. Obviously, this is across the regions, and sometimes there's local dynamics that influence the respective markets. But at a broad level, pulp prices are coming down and are pretty low levels at the moment. Obviously, it does take time to realize some of that benefit. in Q1, and hopefully that will continue in Q2. Wood costs were up a little bit overall, but again, that was a mixed issue, so I'm not overly concerned. We are seeing relatively low wood prices in South Africa, which will help us. Turning to slide six, our net debt evolution. As I said earlier, I'm pleased with this result. Leverage under two. It will rise a little bit obviously in the next quarter as we incur the big capex for our Somerset project, but we continue to maintain a tight control here. We did benefit in the quarter. from the fact that we had a stronger dollar relative to the euro and obviously as you all know a big chunk of our our debt is denominated in euros so we benefited from that and that brings me to slide 7 which is the debt maturity profile very pleased to announce that we extended our securitization program that's the dark blue bar in the 2028 year. It's been a great program for us. We get a very low cost and we've extended it once again and the only other major or maturity that we have in the next two years is obviously our 2026 bond. That's for about 240 million dollars. We continue to watch the markets, and we will pick the optimal time to refinance that. Obviously, these were issued at a time a few years ago when interest rates were pretty low, so we're making the most and capitalizing on the lower interest rates. And as I say, we'll pick the right time to refinance there. Slide eight has the cash flow and capex. Firstly, on the left-hand side, the capex, cash generated from operations. Nice start to the year, obviously on the higher profitability and that coming through. At the bottom line, obviously we had to fund the higher capex that came through, so giving us a net outflow for the year of 62, which that was offset by the impact of the stronger dollar that I said. On the right-hand side is the capex. Previously, we had guided you to 500 million for the year. As we got closer to the completion of our Somerset project, we have seen a rise in labor costs associated with that project. And obviously, we're at a very important stage. We're in the shut at the moment, actually. And as we've got closer to the completion stage, we have estimated that the labor costs will be higher. And as a result of that, we have adjusted the overall capex for the year to 525. The project is going very well. As I said, we're in the shot. We're meeting our deadlines, and we're still very confident about the start update, which will happen in April. So very pleased with the progress. Unfortunately, you have had wage inflation in the US, and that had an impact on labor costs coming through. Slide nine is our Capital allocation, we continue to be very disciplined. It's a busy slide, so I'm not going to go into detail, but just to focus on the fact that we are committed to our longer-term net debt targets. In absolute terms, it's about a billion. Once the project is complete, which I've just indicated was There's going to be a strong focus across the business on debt reduction. We've got no major capital projects in the second half of this financial year and into 2026. So by the time we get to the end of 2026, we're confident that the debt will be substantially lower and obviously much closer to this target that we've set ourselves. Profit improvements. We're going to start to reap the rewards of the two big projects that we've had. Obviously, at Somerset, we will complete in April, and then we're going to see a progressive ramp up thereafter. A very exciting project with very good returns, and as I say, ramping up quarter by quarter. And then at Grant Corn, as you know, we spent some money there to give us the capability of making Wake Blue Labels and that is now complete and we're ramping up there quite nicely. So feeling good about the two big projects and that they can deliver the exciting returns that we had in our business cases. Then moving to slide, I'm moving forward now to slide 11 and focusing on the product segments. Just another good quarter. I'm pleased to say production cycle was excellent. We really have made some nice, impressive improvements at the mill over the last couple of years and very pleased with the progress. The volumes, quarter on quarter, we may get asked that. It was really because we had such a We started the year with low inventories because of a good prior quarter, but we're fully sold out on our production and as I said earlier, strong demand from our customers to give them volume. Then on the packaging segment, it was a more difficult quarter. If I look at it from a regional perspective, well, firstly, very pleased with the volumes in North America. So that's good progress. Obviously, as we get closer to the completion of the PM2, At Somerset, we are signing up new customers, but there's a little bit of a mix difference ahead of that, and that did impact a little bit on the margins. But all in all, feeling very confident. The European recovery continues to lag. It's predominantly linked to the European economy. It's much slower. And then across a number of the product categories, not just within SAPI, but across packaging and specialities in Europe, we're still not seeing volumes back at pre-COVID levels. So it is lagging, but we are confident that we will see progressive recovery. It's just taking longer. And then in South Africa, nice Operational efficiency improvements helped us. On the volume side, the citrus season in South Africa was lower than prior estimates, which meant that our customers were carrying a little bit of extra inventory, which impacted on Q1. But the underlying business is great, and we would expect volumes to pick up later in the year. And then on graphics, very pleased. Obviously, we all know that this is a segment, a category that's in long-term decline. But I think what this page highlights to you is that if you manage your capacity, your efficiencies, you can make good margins. And so we're pleased with the progress. We continue to try and be proactive. We benefited from the lower costs. And we'll continue to do that. And then regionally, on slide 14, I don't intend going into great detail. The key numbers are there. Firstly, Europe, the year-on-year tons is down, but that is predominantly linked to the decline of graphics, which we've talked about before and I referred to on the prior slide. We know that graphic volumes will decline over time. The reason the margin is lower is not graphics. It's actually the packaging, and it's linked to the difficult market conditions that we are facing in Europe. North America, good improvement, good margins, and similarly in South Africa. And you see that graphically on page 15. I don't intend going through this, but obviously very pleased with the margins that we're getting in North America and South Africa. North America will obviously, once the project is complete, we're going to see higher volumes coming through and good margins on the back of that. Europe taking longer to recover, as I indicated, predominantly. linked to the packaging segment. Then on slide 16, the Thrive Strategy. Again, we shared this list with you many times. My intention is not to go through this, but just to highlight that this continues to guide us as we move forward. Obviously, a strong focus on operational excellence, and I think we've seen the benefits of that coming through in the last year. On the cost side in these volatile times there are opportunities there It's very important that we optimize supply chain, but but in these volatile times There are there can be opportunities and I think we've demonstrated that and we will continue to do so On growing the business obviously We've got the two big projects, Spratcom now behind us, we're ramping up, and then Somerset very close to completion. And then being very disciplined on the balance sheet side and, as I say, getting back down to those longer-term targets. Then turning to slide 18, which is our outlook, these are interesting times, lots of challenging global macroeconomic conditions and lots of volatility. We obviously have to navigate through that. But within our product groups, DP remains strong. Obviously, we've just finished the Chinese New Year, which is typically the quiet time. And we're going to see more activity as we go forward post that period. Packaging. Generally stable. Obviously, as I indicated earlier, South Africa pick up in volumes in the second half of the year. We've got North America completing the project, the subsequent ramp up, and then I think a gradual improvement in Europe. But it's going to be linked to the economic situation. And then graphics. It's resumed its historical decline, but we're managing that very effectively, and we'll continue to be proactive. The one thing I should call out is obviously when we convert that PM2 machine, that's effectively taking out more capacity in that space. And in Europe, with the ramp-up of labels at Gratcon, that's also the equivalent of taking out a machine. keeps the market tight, and hopefully boosts the margins and keeps them at these healthy levels. On the cost side, the paper businesses will benefit from the lower pulp costs, and clearly we want that to last as long as possible. We do have the two shots in South Africa, in Gurdwara and Sycor. Last year they were in Q1, this year they're in Q2. In Gdwana, you may recall from last year, we did an 18-month shut. We felt it was not appropriate to do another 18-month shut, so we went for 15 months this time, and we think that is the optimal period. But the net impact of those two, if you were comparing or looking at the earnings was in absolute terms was 45 million. Moving to the next slide we've obviously got the Somerset extended shot and we're in that at the moment things are going well and we estimate the impact on this quarter's earnings of 21 million. The capex I've already spoken about and obviously The biggest proportion of this number relates to the project. And then ultimately the guidance is that if you take into account the two shuts in South Africa, the Somerset extended shut ahead of the project, if you take those into account, and I want to stress to you that the underlying conditions are still stable. They haven't changed. We don't see any material change in those conditions in this quarter. But if you take into account those impacts that I referred to, then that means that the adjusted EBITDA would be below that. The Q2 number will be below that of Q1. Operator, that's me gone through the presentation. I'll now hand it back to you for questions.

Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1-1 on your telephone. If your question has been answered, or you wish to move yourself from the queue, please press star 1-1 again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Lars Gelberg with Stifel. Your line is open.

Thank you. Thanks for providing all the details that you've done, especially around the closure, et cetera, and maintenance activities in Q2. I'd just like to fast forward to Q3. Again, as far as I understand, cycle goes down again and Cloquet. And then, of course, we need to consider, as you start to ramp up the new Somerset machine, do you have any ways to guide us what you expect in terms of costs for that quarter? as well, and then of course there's a translation into Q4. That should be a fairly smooth quarter, I would assume. That's my first question. The other one refers to GraphCon. I can only assume that you're in now some sort of approval phase, testing phase with your clients. When should we expect that to start to contribute to your numbers? And then I thought you made some comments around you know, the dissolving wood pulp business seeing some pricing pressures around the China Lunar New Year. But do you see that as a temporary effect and then you would expect prices to recover? And the final thing on paper pulps, one of the suppliers talked about increasing rebates. That's going to offset the first price increase they've announced of $50 per ton for softwood. Are you seeing increasing rebates across the board in the purchase pulp that you're buying.

Okay, Lars. Firstly, on the shots, yeah, we've got Cloquet in Q3. You're right. And does someone have the estimated impact of that? It's normally about 20 million, Lars. The cycle one is a much smaller shut and we would not have that material and impact. In terms of the, and then Q4, you asked about Q4. Yeah, Q4 will be a clean quarter and there's not any material shut from that quarter. So all in all, obviously less shuts Then this quarter, but we've got to get through the the cloak a shot and Mike. That's an 18-month shot as well, isn't it? Yeah, and So then the second question is on Greg corn, I'll let Marco talk Talk to that one Marco. Do you know? Yeah.

Yeah. Thanks, Steve. Yeah Lars the qualification period of course has been very intense that is for the biggest part behind us, so we want to be ready for the start of the new calendar year. It doesn't mean that overnight this machine in Grafcon will be filled, obviously, but the ramp-up is starting. The beauty of this conversion is that we're talking about a hybrid machine, so it's both able to produce still some coated wood-free as well as the upcoming ramp-up

uh of the of the label product so yeah we're uh we're off uh for a good start uh for the first part of the of the ramp up in in this year thanks marco and dissolving pulp um i'll let muhammad talk a little bit more about general market conditions but you know typically uh we always see a quiet period ahead of uh the Chinese New Year, and activity slows down. Obviously, GDP prices did come down a little bit, but it's not something that we're overly concerned about. Activity will pick up and is starting to pick up. If you look at the market fundamentals in terms of the supply-demand balance, we're feeling very good about short-term and medium-term pricing. But Mohammed, maybe you just want to elaborate further.

Thank you, Steve. I'll just add that going into the Chinese New Year holidays, the industry VSF operating rates in China remained high and the inventory levels at the VSF producers remained low, well below historical levels. We did see some price decrease for VSF, which had some impact on the DP price going into Chinese New Year. But having said that, you know, China came back today. We've seen already some announcements on the VSF prices where they're asking for higher prices, again, on the back of the very low inventory and high operating rates. And there's a very, very strong correlation between VSF price movements and the dissolving power price movement.

Thanks, Mohamed. And then on terms of rebates, I'm not sure there's much we can say on that. Those are negotiations that we have with our customers, sorry, our suppliers, and hopefully we're better at negotiating than our competitors.

Okay. The one still outstanding is Somerset Ramp-Up. How How should we think about that in fiscal Q3 and going into Q4?

Yeah, that's a good question. Obviously, it goes live early in April, and you've been around long enough. You know that there's a ramp up on these new machines. That will occur or begin to occur, obviously, in Q3. So you would see an impact. We don't think that Somerset will be back to full profitability in Q3, but certainly as we get to Q4, we would cross the threshold of prior profitability, and then each quarter thereafter, a subsequent improvement.

Final, final for me, cadence of CapEx this year. I guess it's peaking this quarter, and then how should we think about the balance in Q3, Q4?

Yeah, well, Glenn, maybe you can go into more detail, but a big chunk is in this quarter.

Yeah, the PM2, the bulk of the PM2 capex will be in this quarter. Quite a bit will filter through into quarter three. And then of that 525, the remainder will be in the quarter four, quarter four being the lowest capex for this year.

The one thing I do want to say, Lars, and obviously the CAPEX has gone up a little bit, but we're feeling very good about the project. And the returns on the project are still very attractive. And this is a project that's going to deliver returns of 20% plus. It's obviously going to take capacity out of the graphic market, and it's going to add substantial EBITDA to SAPI from next year onwards.

Thank you. One moment for our next question. Our next question comes from James Perry with Citi. Your line is open.

Hi. Thanks for the presentation. I'd still like to ask about forestry. How do you see the price valuation and wood prices into 2025? And should we expect more negative moves, or do you expect normalization to small positives? And secondly, on capex, you said you expect capex to reduce significantly once projects are completed. What kind of level are you alluding to? Is that to depreciation levels, or are you able to give any rough figures?

OK. Yeah, the forestry one, it's a difficult one to predict exactly. Based on our short-term projections, we're not anticipating any major fluctuations. Whether they start rising again, I fundamentally believe that in the long-term forestry assets There's obviously a little bit of short-term volatility, but we're not expecting any major deviation in the current quarter. Graham, is there anything more you want to speak generally on forestry valuation?

No, I think broadly speaking, we don't expect to see international wood chip prices, certainly out of South Africa, increasing in dollar terms. So locally, it'll be a function of RAND dollar exchange rate more than anything else. But again, our forecast for the rest of the year is for woods prices in RAND terms to remain flat or maybe very marginally up So we're not seeing any large pressure at the moment from a market price of wood, nor from an own internal wood cost, growing cost of wood either.

Thanks Graham. And then on your second question on CapEx, yeah. It would certainly come much closer to the depreciation levels. Just to remind everybody that we estimate our maintenance capex number around about 250 a year. We've got some sustainability projects. And typically, we estimate that at about 50 or 60 a year. And then generally, we have some smaller cost saving initiatives. that take up a little bit of capex as well. So we haven't finalized our numbers for next year, and we've obviously got to go through our own internal budgeting processes and all that. But that probably gives you a rough indication of where we would expect the numbers to be.

Okay, that's helpful. Thank you. One moment for our next question. Our next question comes from Brian Mork with RMB Morgan Stanley. Your line is open.

Hi, thanks for the time. Steve, if we were to fast forward 12 months from here and PM2 is ramping up and meeting expectations and generating EBITDA as it has been in the last couple of quarters and free cash flow is pretty strong, you've come to the end of the CAPEX cycle. How would you be feeling about capital allocation at that stage, do you think? Are there projects in the system which you think that you need to pull the trigger on in 12 months' time?

Firstly, that's going to take us through to the end of 2026. We certainly haven't made any decisions on future projects from 27 and beyond. I think that we've certainly got exciting opportunities in South Africa to grow our packaging capacity. As you know, the citrus fruit projections are pretty good. I think they're growing at 8% per annum. Oh, man.

One moment, ladies and gentlemen, please stand by. Sorry? Your line was muted, so it's open. Now you can go ahead and continue with the answer.

My line was muted. Operator, when was I muted from?

When you were answering Brian's question, his last question.

Brian, I don't know how much... You were talking about container board options.

South Africa yeah and I was saying that there's you know the citrus industry is indicating that they need more capacity to for their growth over the next few years which is estimated at about eight and product group for us so We would evaluate our options there, so that would be a very exciting opportunity longer term, but we're not even at engineering phases on that kind of thing, Brian. We're laser focused on the debt reduction in the short term. In North America, we've just finished this big project. You know, we want to ramp up there and focus on efficiencies and stability and, you know, giving the returns that we promised. So, you know, all in all, that is our main focus of attention at this point in time.

Okay, that's cool. Thanks, Steve.

One moment for our next question. Our next question comes from James Tomlin with Persistent. Your line is open.

Yeah, thank you very much, and thank you for the presentation. Yeah, I've got two questions, if I may. The first one is, in terms of the European business, compared with Q4, volumes came off quite a bit, but you managed to maintain your operating profit. And I'm just wondering whether that was due to a bit of a benefit from pulp costs or whether there's any more cost savings that have come through, and sort of just trying to understand whether the pulp benefits... are fully in now. And then the second question was, Billa had talked about a $50 a ton price rise in the US a few days ago. I'm keen to know whether you've done that, whether you led it or followed it, and whether you're likely to do it just for reels or whether the sheets market could also see an increase. Thank you.

Thank you, James. Michael will take the Billerwood, the market price increase question, and I'll let Marco elaborate further on the European. Yeah, you are right. There was lower volumes. Interestingly, we had October and November were pretty good, but we had a slow December. We're seeing better volumes in January. But all in all, that lower volume did impact, obviously, on profitability. You're right. We did get nice pulp savings. Just remember that we were working through some of the pulp inventories from the prior quarter, right? So pulp prices are still pretty good. And we're hoping that we can continue to benefit from that, certainly in this quarter and you know, as the weeks go by, hopefully into Q3 as well. But maybe, Marco, you want to go a little bit further there?

Yeah, James, I think you captured the three variables. We were able to keep our pricing fairly stable quarter on quarter. We lost a little bit of volume, and that was offset by some of the benefits that we could capture. Altogether, it was a balancing act which led to very similar profitability this previous quarter.

Thanks, Marco. Mike, do you want to just talk about the board?

So on the graphics business in North America, we did announce a price increase of $50 a ton on web. That was towards the end of January. I really can't comment on Billerud, and that was a web price increase, and that's where we've seen the strength from the shutdown of the Willamette Mill, and we see that further strengthening with the transition on PM2.

James?

Hello. Yeah, thank you. So just in terms of the graphics, there wasn't an increase on cheats, which I think is what, a third of your business? What your thoughts are regarding that?

The sheets in North America are heavily dependent on or impacted by imports, and that's not a business that we typically – we weren't in a place to see the same level of demand that we were seeing on the web, so we announced with just the web.

Okay, thank you. Could I just ask whether you led the increase or whether Billerud led the increase?

We wouldn't know, James. We did what we wanted to do. We felt was appropriate. We don't look to Billerud.

Okay. Thank you. One moment for our next question. Our next question comes from Brent Medell with APSA. Your line is open.

Yeah, thanks very much. I have three questions, if I may. So just in light of the Somerset conversion which is taking place at the moment, obviously the strategy around reduced graphic paper exposure for the group overall, it's evident that the U.S. graphic paper market appears to be holding up materially better than the European graphic paper market. So maybe just your thoughts on... you know, whether the U.S. graphic paper market is doing better than yet previously expected. My second question is, obviously, there's reference around pulp prices coming down and, you know, that potentially improving your margins. I've read, you know, some news items that some of the pulp producers are looking to increase prices. Just your thoughts on, you know, this lower trend of pulp prices potentially coming to an end relatively soon, or if you think that that might potentially reverse in the short term. And just my last question, just on the DWP market, obviously we've seen a number of integrated producers increasing supply, and that hasn't had a material impact on the market because, once again, we've seen quite a bit of disruption and disrupted supply. Just your thoughts around the probability of that coming back into the markets in the short term, which could change the dynamic in terms of the DWP price. Thanks very much.

Thank you. Your first question in terms of the graphic market getting better. In North America, no, I don't think they're getting better, but what has happened is that, and Mike alluded to it earlier, one of our small competitors in the US closed, and that took more capacity out of the market. So that's why you're seeing our year-on-year volumes for graphics in North America higher than a year ago. But overall market conditions, you know, we continue to believe that it will drop, you know, around about 8% a year. And, you know, I think what we've done a good job of in recent times is to be proactive around that. We anticipated this drop and we think the timing of the PM2 conversion is appropriate. It will further tighten the market, obviously, and we think will help maintain healthy margins for graphic paper. Just remember, we always have the ability to swing. on PM1. So we can always choose the best margin there. So I think you're going to have a tight market situation. As Mike also touched on, particularly on the website, that there's really only two domestic players. So it's a tight market, and we think good opportunities there. The second question was pulp and when the pulp prices are going to increase. Look, we all think that pulp prices will rise and really it's just how long do they remain at depressed levels and can we maximize that opportunity? It went down further than we had anticipated and yes, there is a little bit of upward pressure, but relatively speaking, there's still opportunities there. Based on our estimates, certainly in the second half of calendar 25, we would expect paper pulp prices to rise. On the DWP front, you referred to integrated producers. You are right that they may have or they have ramped up production, but it is for their own internal use. It's not that they're competing with us in spot markets in China. So, yes, overall the capacity has increased, but demand continues to grow. We saw a nice growth in demand in 2024, and we continue to believe that demand will grow 4 or 5 percent a year and will more than absorb that capacity and just to repeat what I've said for the last couple of years is there's still no significant new capacity, there is one or two smaller capacity additions but all in all the market balance is very healthy for the medium term and I've been saying this for the last couple of years and I think that's why the DP price has been pretty stable at nice levels, and we think that will continue to be the case.

Yeah, thanks very much. Just on the last question, so in principle, you don't think some of the disrupted supply will come to the back market, and even if it does, you think that there's sufficient demand to absorb it?

That's right, yes.

Okay, thank you.

One moment for our next question. Our next question comes from Sean Unger with Chronix Research. Your line is open.

Good afternoon, Steve. Thanks for the time. This first question around the U.S., Steve, just obviously there's been quite a bit of noise and news around tariffs. Perhaps you could just comment on how you envisage that's going to affect your U.S. ops and how you're going to manage them, and then maybe just thinking a little bit deeper in terms of perhaps raw material procurement. That's the first question. Thanks.

Thanks, Sean. Well, look, the first thing to say is there's so much uncertainty and one day there's maybe tariffs and the next day there's not. Like any prudent management team, we have to evaluate different scenarios and we're doing that as events unfold. The first thing I would say is just remember that our North American business is a domestic producer. And that will put us in a healthy position with regards to imports. And we don't know where tariffs will be, whether there'll be tariffs on Europe or there'll be tariffs on wherever. But as an overall principle, the fact that we're a strong domestic producer puts us in a very good position. Obviously, raw materials, some of them are sourced outside of the U.S. and there could be an impact there. We have to evaluate that and we have to determine whether there's alternative sources of supply. And we're evaluating that on an ongoing basis. So I think net-net, and that's why we called it an outlook statement, negative impact maybe from some of the raw materials, but a positive impact on the fact that we've got domestic production and it may impact other importers against us. It's hard to be more definitive in terms of numbers, Sean, because because it changes every day. And we're evaluating. But net-net, the fact that we are a domestic producer, and it does seem like the Trump administration wants to boost domestic producers and production, hopefully we can benefit from that.

Okay, that's perfect. Thanks, Steve. And then just going back to the price increase in graphics in the U.S. Sorry, I don't know if I misheard or didn't hear properly, but what percentage of remaining volumes does that price increase apply to?

It's roughly two-thirds, one-third, right? So the web is two-thirds, and that's what that price increase related to.

So 67% of remaining graphic paper volumes after the conversion. Yeah. Okay, perfect. And Steve, just turning to the Somerset conversion, so just to confirm, total project cost goes from $418 plus $25 million, is that correct?

Yeah, our estimate, our best estimate is approximately $450, yes.

Okay, great. And then just in terms of that, you've obviously flagged that it's largely driven by labor inflation. Is that just, I mean, sort of how recent is that, I guess, now that it's being flagged? And then I guess, secondly, it sounds quite material, so how should we sort of think about the flow through onto the US ops on the next sort of, I don't know, I guess two years, I guess?

I'll let Mike go into more detail. I don't think it's specific to our ops cost because you're sourcing... the labor costs on the construction side from different parts of the U.S. So you don't have to worry about that. Specifically about the emergence of those costs, you know, Mike, maybe you just want to talk to that.

I think the best way to think about it is as you go into a major shutdown like this, we have roughly 250 local contractors that are available, and we peak in excess of 800 contractors onsite for the 70-day outage. Those travelers were much more expensive to get them to come to Maine than what we had originally expected.

Okay, great. Thanks so much for that. And then just, Steve, I think I'm not sure if I heard you correctly earlier. I mean, it obviously does seem that pulp prices have come off, but that they are likely to sort of rise in the coming quarters. Is that sort of your view as well? DP, you know what I mean? No, no, no. Purchase pulp in Europe. Okay.

Yeah, they've obviously come down, but you have seen a little bit of rising prices in China, and typically that leads the market. So that's why there's normally a lag into Europe, and that's why I said what I did. I mean, it's obviously at the moment spot prices are lower than we had anticipated six months ago. And obviously we want to extend that for as long as possible. But in the second half of the year, all forecasts seem to be indicating that there'll be some rise. Having said that, longer term, obviously we know there's a whole bunch of new capacity, particularly obviously on hardwood pulp. So let's say the medium term outlook, For us as a buyer of the paper pulp, hopefully there's some opportunities for us.

Okay, thanks. I'm just trying to sort of weigh that up with, you know, if pulp prices start rising and you've obviously seen quite a sharp fall in graphic paper demand in this quarter and pricing, I mean, there doesn't seem to be any price increases announced in Europe. I'm just sort of trying to understand the trajectory.

I get it. Look, just bear in mind that the pulp, you know, we hold inventories, right? And it takes time to work through inventories. And we're already halfway through. We're in February now, right? So you've got your inventories. You know where current pricing is. So if you forward project that, that's taking you beyond Q3.

Got you. Perfect. That's great. Thanks very much, Steve.

Yeah.

That's it from my side.

Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 1-1 on your telephone. Our last question comes from Andrew Jones with UBS. Your line is open.

Hi, James. Just a couple of questions for me. First of all, a follow-up on that tariffs question. Can you just remind us on the actual distribution of where those imports are coming from in the main product areas? And specifically, obviously, Canada and Mexico. I mean, I know a lot of volume obviously comes over from Europe on the carton port side, and that's probably one source. But specifically on those countries that have been targeted in recent times. Can you just give us a bit of a breakdown of the data? And then just a second one, just on the ramp, you know, with the ramp up. Can you just give us an idea about how to expect the working capital to play out over the course of the year in the next few quarters? Thanks.

Sure. Glenn, I'll come back to you on the working capital evolution. Sorry, Andrew, when you asked about imports, were you talking about imports of paper?

Yeah. Yeah, I'm thinking about in the areas in the U.S. where you're present, including, you know, with... Oh, okay, okay.

Yeah, yeah. Look, in areas that we're in, obviously, you know, there are significant imports of coated wood-free sheet coming from Europe. We are one of them, by the way, but there are other players there. And on the West Coast, you get imports mainly from Korea. Mike, I think imports represents about 30 to 40%, isn't it, of the overall? If I recall, yeah. Yeah, more than that.

Is there any meaningful flow from Mexico or Canada on the coated wood-free side?

No, not on that front, no, no. And then on the SBS board side, you know there's some folding box board that comes from, I'm not going to name the competitors, but there's one or two box board competitors from Europe that also import into the US. But Canada, Mexico, no. I think there are other pay for categories that do import from Canada, but that's not so much in our category.

Okay. That's clear. And the working capital?

Yeah, on the working capital, we're expecting a further outflow in the current quarter, quarter two, and then inflows in quarter three and quarter four. Okay.

Makes sense. Any way to quantify that, or it's hard to estimate at this stage?

It's difficult to give you a quantification over the core, but it's... We're going to have an outflow for the current quarter of just short of about $130 million. As I said, we anticipate that's going to increase further in terms of outflows for this quarter two. And then the majority of that will reverse over quarter three and four, but we'll land year-on-year with a slight cash outflow on working capital. Okay, that's very clear.

Thank you.

And I'm not showing any further questions at this time. I'd like to turn the call back to Steve for any closing remarks.

Yeah, thanks, operator. I just want to take the opportunity to thank everybody for joining us on the call, and we look forward to discussing our results at the end of Q2. Thank you very much.

Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.