Sappi Ltd S/Adr

And thank you for standing by. Welcome to the SAPI First Quarter2026 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the question and answer session. To ask a question during the session, you need to press star, 1, 1 on your cell phone keypad. You're going to hear an automatic message advising your hand is raised. To read your question, please press star, 1, and 1 again. Read the advice that this conference has been recorded. I would now like to hand the conference over to our speaker today, Steve Binnie. Theo, please go ahead.

Thank you very much and good day to everybody. Thank you for joining us. I will move through our investor presentation and, as always, call out the page numbers as I go. And just starting on page two, I draw attention to the disclosure on forward-looking statements for you. Moving to slide three. Looking at the overall numbers for our Q1, it's fair to say that these were challenging market conditions with a number of headwinds which had an adverse impact on our earnings and just highlighting a few of these which have the most material impact. Firstly, resolving pulp prices down $160 compared to a year ago, a very material impact, and We've seen this shift in exchange rates linked to a stronger dollar, sorry, a stronger Rand or maybe even more relevant is a weaker dollar, which once again has a major impact on our earnings. On top of that, we've seen as we've gone live with our Somerset Mill PM2 project, We've come to market at a time when paper boat markets are weak in North America, which has meant that our ramp-up has been a bit slower than anticipated. We did have some production issues in North America. These were once-off events, mainly linked to our utilities, and they caused the mill B.Com B.Com B.Com B.Com B.Com B.Com A number of cost-saving initiatives across the group. And on top of that, we did get some energy refunds in Europe, which offset the higher energy costs that do occur during the year. Moving to slide four, which is the Earnings Bridge, comparing last year, quarter one to this year. Obviously this year we had 90 million EBITDA which is lower than we would like it to be as a result of the headwinds that I mentioned and if you reflect on this page overall you can see that pricing is the main story. It's across all segments but in particular BWP it's had a major impact. The volumes actually held up pretty well and we'll talk about that in a little bit more detail We did get savings on costs, variable costs and that's in spite of the, what's included in that is the exchange rate impact on higher costs coming through a number of our costs as you know are denominated in Euros and Rands and when you convert that to Dollars it does have a negative impact. We had under fixed costs we did have the Somerset shut in the quarter coming through and then You have your annual increases as well on labor. So all in all, a substantially lower level than last year due to the headwinds that I described. Moving to slide five, specifically on the major variable costs, the main categories. And I'm not going to talk to all quarters, but in more recent times, you can see that B.Com B.Com B.Com B.Com B.Com B.Com Turning to slide 6, our net debt to adjusted EBITDA development. Because of the lower earnings and the impact of the currencies on our Euro debt, it has meant that our ratio has increased five times. In absolute terms, our net debt is at 1951 million. You can see in spite of the difficult quarters that we're currently experiencing, you can see that we have managed to keep our net debt levels relatively stable over the last two quarters. Moving to slide seven, the maturity profile of our debt and just to call out a few key elements. Firstly, under short-term debt, you can see we've got €183 million reflected there in Europe. And I'm very pleased to say that after quarter end, we did finalize and sign and ultimately the cash has flowed a new €200 million five-year term loan. B.Com B.Com B.Com B.Com B.Com B.Com Our drawings on that is reflected here under the 2027 box, the 117. As I say, pleased to say that that has, we signed a new facility increase from 515 to 550. We've got two additional banks, part of our syndicate, very pleased with that. I think it reflects strong support from our banking partners as we move forward. We did negotiate higher covenants with that, and that maintains our flexibility as we move through these challenging times. Moving to slide eight, the cash flow and capex. Well, firstly, on the B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com As you know, we have a covenant linked to our leverage ratio. The maths on that is slightly different to the published balance sheet numbers that you have. So overall, the ratio came in at 4.9 pounds for the quarter. As I say, that's within the revised covenants that we've negotiated. From a liquidity perspective, I'm very pleased to say that we do have 143 million on hand. We've got RCF facilities that are undrawn of 680 million. So, you know, we believe that that gives us adequate liquidity. And as always, and I think that's emphasized by our achievement to negotiate with the banks. We have very good relationships with our banks. They're longstanding. They understand our business. They know the cyclicality, they know where we are with the current macro challenges and we stay close to them, we ensure that we've got maximum flexibility during this difficult period. The middle block here is what I've already talked about, so I don't intend repeating that. On the right-hand side, you see Strong focus on back-to-basics, evidenced by a reduction in capex that I've talked about, substantially lower than it was last year, obviously, and we've removed any non-essential capex. At the same time, we've got a number of cost-saving initiatives across the group, and we're targeting 120 million for the year. A lot of that's in Europe, but it is across each of the regions. Moving to slide 10, I don't intend going through. This is our five strategy. The pillars are still relevant, and we continue to work across all of them, but it's fair to say that at this point in time, we're laser focused on back to basics and getting B.Com B.Com B.Com B.Com B.Com B.Com Those initiatives are on track. Specifically the consultation processes are now complete where labour has been impacted. At Alfelt we have completed PM1 and PM4 closure and similarly at Kuknimi PM2. Those have been completed now and the benefits from those will start flowing From Q2 onwards. Slide 12 has the joint venture with UPM. Back in December, we did announce this. In repeating everything I said on the results call that we had for this, Other than just to re-emphasize that we're very excited by this transaction. We think it represents a tremendous opportunity and ultimately will lead to reducing our exposure to graphic paper in Europe. We think there are substantial synergy opportunities and it will help reduce debt. B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com We will take that to shareholders. There will be a circular, and we will go on that. But generally, everything on track. The transaction is obviously subject to a number of suspenseful conditions, the biggest one being the approval from competition authorities. We've been engaging with them. It's progressing as expected so far. It's early days. We have teams working on that and we'll update you when we do have progress. We're targeting completing the transaction by the end of 2026. Moving to the segmental and firstly on pulp. Underlying volumes and demand for SAPI's Verve BWP continue to be good and solid. I'm pleased to say that stability in South Africa's production has been good. Production at SAICO's best has been since we completed that expansion project a number of years ago. Operations are stable and we're very pleased with that. B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com So those had a major impact which impacted on the volumes. Packaging on slide 16. Volumes generally okay albeit that North America, the ramp up on PM2 is a little bit slower than we would like it to be. But generally volumes is not the issue. Global packaging markets are under pressure which has affected selling prices in each of our businesses. And that's the main issue at the moment. Specifically in North America, we had the shut so that would impact on profitability in the quarter. And as I said earlier, there was a couple of ones off utility power related incidents in at the two mills in the US which impacted on our B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com I should have mentioned earlier that pricing in North America has been healthy with the tight market conditions following our conversion. Then moving to slide 18, there's a lot of numbers on this page, just very briefly just talking about each of the regions. Europe, as I said earlier, volume is holding up reasonably okay. It's a pricing issue linked to the excess capacity across B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com B.Com That's both the evolving pulp and the packaging grade. And then in South Africa, very good volumes. But DWP selling prices dwarfs that performance. And you can see that selling prices overall 12% down on a year ago. On slide 19, just some of our ESG issues. A few to call out. Firstly on the CDP, very pleased with our scores. We've seen an improvement on climate change, an improvement on forests. We're very proud of that. And also very proud of the awards that we, or the recognition that we received from Forbes in terms of being one of the B.Com B.Com B.Com B.Com B.Com B.Com B.Com D.W.P. volumes are okay and robust. So demand is good, but it's a pricing challenge that we currently face. We're doing a lot of work on costs to take costs out of the business to help mitigate some of that impact. And then, you know, moving across to slide 22, strong focus on efficiencies in our back to basics and optimizing working capital, B.Com B.Com B.Com B.Com B.Com B.Com B.Com I do think exchange rates is playing a major role in that because obviously DWP prices are priced in dollars, so I think the fact that the dollar is weaker should help us as well. But taking all of that into account, we anticipate that the adjusted EBITDA for the second quarter will be lower than what we've just reported for the first quarter. So, operator, I've gone through the presentation. I'm going to now 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 telephone keypad and wait for a name to be announced. To withdraw a question, please press star 1 and 1 again. Please compile the Q&A roster. This will take a few moments. And now we're going to take our first question, and it comes from Sean Ungerer from Chronix Research. Your line is open. Please ask your question.