Sappi Ltd S/Adr

you compare the market prices quarter on quarter, you can see that they were down about $100 a ton compared to the last quarter. And that has a big impact on profitability. So all in all, very pleased with the ramp up. The volumes are going well, but market prices in the short term under a little bit of pressure. Side six is our earnings bridge from a year ago to now, and it's the same themes that come through. Big impact on selling prices, negative. We've done a lot of great work on taking costs out of the business, which offset some of that, but clearly not all. And then the currency, when we compared the currency conversion, that was a negative as well, which ultimately led to the 52 million EBITDA that you saw compared to what was there in the prior year. Moving to slide seven, cost inflation, which is obviously another big driver. And in the quarter that we just reported, we did see a rise in a number of our key costs. Even before the Iran war started, things were starting to increase, but that was exacerbated when the war broke out. It's had an impact on the quarter, but we thought it would be useful just to share with you what it meant for the quarter ahead. You can see that there are some significant rises. The one we're most concerned about is the delivery cost, because that's a big number. We all know that fuel prices, oil prices rising, shipping costs are rising as well. And that's got a vast impact. But also a number of our raw materials that we're using in our mills, and we list three there, three big ones, sulfur, caustic, and latex. And with the constraints on shipping globally and what's happening in the Hormuz Strait, a lot of that product, particularly sulfur, is not really flowing. And there's a bit of a scramble to get your hands on these products. Things like latex is obviously linked to the oil price. So those have been rising substantially. And when we take these all into account, we estimate quarter-on-quarter, that's about a $30 million increased cost. And it's for that reason, I know there's probably some questions about why our outlook statement would be negative, because other things are improving. Selling prices, and we're doing a lot of great work on mitigating that, and selling prices for DWP are going up, graphic prices are going up, but unfortunately, You know, when you get a $30 million increased cost, that is why we have to be cautious with our outlook statement. Moving to slide eight is our net debt leverage. Obviously, with the lower profitability, our leverage ratio has increased six times. It was very important with that in mind that we proactively negotiated a suspension of our leverage covenant. I'm very pleased to say that that was achieved. That emphasizes the strong relationships with the banks that we have, our partners, and their understanding of our business. And I'll touch on that in a little bit more detail. Pleasingly, despite the lower profitability, our debt if you look across the last four quarters, our debt has actually been very stable. And that emphasizes how the discipline that we're bringing in, despite the low profitability, that we are able to proactively manage our debt and keep it at these levels. So I think that's a big achievement despite the low profitability. Moving to slide nine just has our debt maturity profile. We don't have any major maturities in the next 18 months or so. The next big one is our 2028 bonds. And we're just monitoring the markets. And we'll pick the optimal time when to refinance those. Moving to slide 10. which just has the cash generation, clearly the lower profitability impacting the cash generation. As part of our back to basics and our focus on strengthening the balance sheet, we brought our capex down. We're looking at about 250 for this year and a similar number for next year. Moving to slide 11. And it's a theme that I've touched on already, but really very pleased that we were able to proactively engage with our banks. We got unanimous support from our bankers. They've been with us for a long time. They understand SAPI. They understand the markets that we're in and are very supportive. So very pleased with that progress. In terms of our flexibility, we have uh 800 million of liquidity across cash on hand and our unutilized rcf facilities so we're pleased with the liquidity that we have and and we believe that gives us the flexibility to negotiate through these tough times um maybe just one point on the the covenants that that suspension period is through to march uh 2027. Also, we did talk about this at the end of the last quarter, but it occurred during this quarter. We moved out some of our short-term debt, once again, emphasizing the strong relationships with the banks. And as I illustrated earlier, that improved our maturity profile. So strong focus on back to basics. We talked about CapEx. On the cost front, yes, there's a lot of challenges, and I've called out the numbers for you, but we have been able to implement a number of cost-saving initiatives. We've been giving you updates from prior quarters. A lot of it's in Europe. As you know, we took out some machines and some capacity, some support costs, but it's not just that region. we've been able to achieve 71 million savings here today. Slide 12 is our drive strategy. Still very relevant, but as I keep emphasizing, back to basics, back to a focus on what we can control around operational excellence, sustaining our financial health and discipline. Trust across all our stakeholders remains important with our people. They're aligned with what we're doing and what we're focused on. And ultimately, in terms of growing the business, I think, you know, one highlight of our results, despite the weak performance, is our volumes are actually pretty stable. And we've been ramping up in the U.S., as I mentioned. You know, we've taken out a lot of capacity in graphics over the last few years, but our volumes are still stable. I think I've got a graph once now to emphasize that to you. Move to slide 13, something you've seen before in terms of our joint venture with UPM. It's progressing as we would have expected, finalizing the final terms and still committed to ultimately we've got to get shareholder approval and then targeting to complete the transaction by the end of 2026, as we've talked about before. The key deadline or the key influencer of the timeline is the regulatory approval on the competition side. And that moves into slide 14, the next one. And just to say, it's progressing as expected. We knew it was going to go into phase two. With a transaction like this, of this scale and significance, was always going to go to a phase two investigation uh we continue to engage with them and ultimately we we we think we've got a strong case and uh looking at a final decision uh closer to the end of this calendar year turning to the segments and page 16. firstly on pulp It's clearly been a challenging time, and it's for the same factors that I've already described, the combination of the lower DWP prices and the, when you convert that, the rent dollar exchange rate. You know, what I would say is that market conditions for DP have improved in recent times. early enough to influence on this quarter uh but we did see uh an 845 dollar return by by the time we got to the end of the quarter but most of the quarter i think it was under 810 dollars so had very little impact and then subsequently you'll see in the output statements uh in the last few weeks it's gone up to 880 dollars a ton so that is helping us and and we're feeling good about the demand and we're feeling yeah good about the outlook on pricing but with taking all that into account it meant that unfortunately for the quarter that we've reported it was close to break even then in the packaging segment I think the big story here is that volumes have been better ramping up in North America and I've already Describe that to you, good progress and certainly accelerating. Europe, actually, we've seen nice volume improvements, and in South Africa, demand continues to be healthy. Unfortunately, these global markets are all interlinked, and we know there's excess capacity in Europe, and selling prices across the globe have been under pressure, and that's influenced all of our markets. In South Africa specifically, once again, the Rand dollar exchange rate plays a role because that makes, it makes imports cheaper on a relative basis. But all in all, feeling good about demand and feeling good about volumes, but we need to, clearly we need to get selling prices up as we move forward. And then on graphics, page 18. Well, firstly, to my point I was making earlier, if you look at the three-year volumes for graphics, now, they've been relatively stable. Now, that's despite us taking out Stockstar, despite us taking out Lonergan, closing a machine at Cook-Nemi, converting a machine at Somerset, other smaller capacity taking out. We've been able to keep our volumes and improve our market share so we're very pleased with that we are proactively managing it it's a it's not a great margin but it's it's a reasonable margin um europe uh slightly lower than than the us in terms of relative margins uh one of the tricky aspects uh as we know in europe is that there is excess capacity and that has uh influenced um their margins but having said that um You know, we're pretty proud of what we've done here. And we've always talked about proactively managing graphics. And I think this page illustrates that we've done a reasonably good job here. Then page 19 talks about the regions themselves and all these things we've touched on. Volumes, OK. Under the circumstances, okay. North America, obviously last year we had the graphics before the machine conversion, but we are picking up the volumes now as we ramp up on Somerset PM2. The big theme is the prices, and you can see that that's coming through. And then on variable costs, although Europe and South Africa down, When you convert those, when we consolidate those, when you convert that all back to dollars, it does have an impact. For example, the Euro is down 11%, but our costs are down seven. The Rand is 12% stronger, and our costs are down five. So when you bring that all together, that's why variable costs at the group level You don't see that same decline. Slide 20, our ESG is an important part of who we are and why we do business. A number of awards. We won best employer at Forbes once again across a number of categories. We've won various sustainability awards. And our forestry certification is good. Our BEA status. continues to be at the top level. So a lot of good work being done on ESG. Moving to the outlook statement and slide 22. Firstly, and I've already touched on this, DWP prices have picked up and demand is good. I would argue that some of the challenges with the Iranian war are helping us. because there is some concerns about supply chains and getting products. So that will help. The volumes in North America are benefiting as we ramp up that curve, and we are confident that we can continue to do that as we continue to promise to you. But pricing is the headache that we have across all our three regions on packaging. Graphics, we've announced price increases in Europe and in the US. Firstly, in Europe, the first price increase was effective first April, and we're making good progress. We've announced the second one for mid-May. And we're working on that. It's obviously early days. In the US, we announced also for early April a COTI-free sheet and labels. And once again, making good progress. Unfortunately, and I've touched on it already, is cost. And I've talked about the 30 million impact from those key variables. which gave us the reason to be cautious. We have a big shot in Gdwana in the quarter, 23 million. So it's important to call that out. We did have Sycor in the last one, but this is a bigger one than the Sycor one. I think we're getting a lot of benefits from our back to basics, taking out costs. elsewhere and and the discipline around our balance sheet and capex but ultimately when you take that all into account the most important factor is the cost that I talked about and because of that we had to be cautious and we and for that reason we're saying that Q3 would likely be below we are getting good traction on selling prices and cost savings elsewhere, but not enough to offset yet those higher costs. And for that reason, we say it will be below the Q2 number. So, operator, we've gone through the investor presentation. I'm now going to hand it to you for questions.

Thank you. So at this time, we're going to conduct a question and answer session. As a reminder, to ask a question via the phone, you'll need to press star 11 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 11 again. So we're now going to transfer to our first question. And the first question comes from James Twyman. from Prescient. You're live. Please go ahead.

Thank you very much. Thank you very much for the presentation. I've got, let's say, two to start with. The first one is you talked about a $30 million increase in costs. I assume that was in the last quarter. Could you give us some idea about what you're expecting for this quarter in terms of why you're more cautious than you would have been? We're looking at a similar sort of number. And then the second one was in terms of price recovery, we are seeing prices going up across the board. Are you seeing that for SBS carton board in the US as well? So that's my first couple, if that's okay.