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.

Yeah, on the cost, that number I gave you was Q3 compared to Q2. And the reason I called it out to you was we were getting a lot of questions about our outlook statement and we wanted to show you why we were being cautious. If it wasn't for that cost rise, we would have been saying our earnings was up. So it was important that I pointed that out to you. These are big jumps. The logistics, shipping, and fuel costs is a big chunk of that $30 million. And it's not unique to CEPI, but it's a vast impact. Clearly, If there was to be resolution in the Iranian war, maybe that could come down. So that's potential, but what we felt was prudent to do was to call out to you what we've included in our assumptions.

Thank you.

James, your second question. No, not yet on SBS. We're getting good traction, as I said, on graphics and labels, but not yet on SBS. We're in a ramp-up phase, so that's our focus. But at this stage, we're not yet seeing price numbers.

OK. If I could follow up with a couple more. In North America, that was where the surprise was, I guess, in the quarter. But if you look at the sort of details, you sold a lot more and the prices did go up a little and the costs overall did come down a little as well. So I think given that we were expecting you to be switching quite a bit of production back to coated fine paper where the demand is, It was surprising that that's still in a loss-making situation.

Look, what I would say, a couple of comments on North America. Well, firstly, remember North America has pulp as well. And you know that overall the pulp segment was close to zero. And you know that, relatively speaking, the costs are higher in the US versus South Africa. So that was a contributor to why North America overall profitability would have been less. As we ramped up the volumes, you are still not at full operational efficiencies. On selling prices, there's a little bit of a mix issue going on there. But specifically in the SPS segment, we gave you a slide on the market. SPS prices were lower. So when you add that to everything else that I've described, that explains the profitability in the North American region in the quarter. Obviously, as we move forward, we're You can hear that we're confident of growing our volumes. That helps with fixed cost absorption. We're also able to optimize our machines because our PM1 machine in Somerset is a swing machine. So if we can make a little bit of higher margin graphics as it currently stands, we can also do that as well. So we are more optimistic. And maybe one last comment, and maybe Mike can elaborate further. We're not at optimal operational performance at the moment. Not necessarily linked to PM2, but there's further improvement to come. And maybe Mike can expand further there.

Thanks, Steve. We have had on the assets other than PM2 some reliability challenges that we put behind us in the last month and a half. So we expect to see improved performance there, which is specifically around graphics volume. And in addition to that, you referenced the PM1 ability to swing to graphics But that's something in the line of 10%, maybe 15% of the volume max. As we're still meeting customer needs for SPS, PM2 has been running very well and is right on our start up. And we're expecting to keep that machine full going forward with where things are. So we're pretty optimistic that the trends for manufacturing in Somerset are on track. Now, I just offer one other caution. The startup curve improves that last give or take 15% of machine production over the next full 12 months. That's not a light switch that comes on. It's optimization of a lot of different processes. So we expect to be, by the end of this year, at 85% of the nameplate and then building from there.

Thank you very much. I'll hand back.

Okay. Thank you very much. We're now going to move on to the next question in the queue. And this question comes from Brian Morgan from RMB Morgan Stanley. Your line is open.

Okay. Hi, guys. Thanks very much. If I may, just following on from that last point, you're talking about 85% utilization by the end of this year. At what stage should we expect to start seeing that sort of headwind from adverse operating leverage becoming a tailwind? Would you expect that in 2027? Is that something that we'll see this year?

Sorry, I'm not quite sure I get your question, Brian. Are you saying... In terms of the fixed cost absorption, I think broadly the curve is going well. We've accelerated. We were a little bit behind, and we've accelerated. And as Mike has said, we've done a nice catch-up in recent weeks. I think from a cost and an efficiency perspective, certainly as we get to the end of this financial year and into the early next financial year, those benefits of the higher volumes will come through. The challenge, Brian, is on the selling price front. And you'll appreciate we are growing market share and we are taking on new customers and we have to manage that very delicately and we're still you know we're still you know we're a growing player in the market but you know there's other players there and you know selling prices are what they are and we unfortunately at the moment they're lower than we would like them to be but there's been a lot of capacity coming out in recent weeks as much as over the last couple of months, 300,000 tons of capacity across a couple of competitors. So that's going to help things. And as the demand continues to be solid and as we strengthen our position, that may create opportunities. But as things currently stand, selling prices, as I said earlier, are lower than where we'd like them to be. Okay, cool.

Thanks, Steve. Can I move on to Europe? The volumes look pretty good. We've had some price increases which you've noticed on the graphic paper side of things. Is the performance and volumes front-end loading by customers ahead of the price increases or is this actual demand?

No, no. We saw order activity good even ahead of the price increase announcements. So overall market volumes have been better than we expected this year actually and we've been gaining market share so um we don't think that's front loading um clearly we we gave you progress on the first increase the second one uh you know we we're we're busy implementing and you know with any price increase there's always a trade-off between price and volume and and that's what we need to uh delicately manage but Marco, I don't know, anything more you want to say?

No, Steve. The market has been developing well since the beginning of this year already. So it has just helped us implementing the price increase, which of course was basically cost-driven as well. But no, it's a good situation right now from a market perspective. Okay.

Thank you. Do you have any timing on the Phase 2 investigation?

Brian, still the same timeline, right? We are conservatively saying it will be completed by the end of the year. There was no surprises in the announcement and nothing new.

There's no deadline for the EC, right? No. No.

Last question, if I may. I think we said in the announcement that we're getting close to signing any transaction agreements and then it's getting to that second phase with the authorities.

Cool. Thanks, Stephen. And last question, if I may. With the impairments that you've taken, can you give us any guide on depreciation charges going forward?

Yeah, so the total impairments was just over 200, it was 220 million. And we've got an average on our heavy machinery, we've got an average depreciation lifetime of 15 years. So we work it out from there. Some of it's Goodwill though, yeah. No, the Goodwill is excluding that. So the Goodwill is on top of that.

Okay, that's super. Thank you so much.

Thanks, Brian. Thank you. We're now going to move on to the next question in the queue. And this question comes from Sean Ungerer from Tronox Research. Your line is open.

Afternoon, Steve. Can you hear me? Yep. Hey, Sean. Excellent. Sorry to hop on the pricing environment. Just taking a step back to specifically SPS in the US. So no price increases or no price increases sort of expected. Sort of as we stand today, are you still seeing pressure on prices or are they stable? That's just the first one around SPS.

Yeah, stable at the moment. As you say, we're not seeing increases, but neither are we seeing decreases at the moment.

Okay, cool. Thanks. And then if I just listen to the sort of commentary on the call as well as your other sort of competitors in the U.S., sort of by the end of the year, sounds pretty optimistic around sort of supply demand balance resolving itself, assuming sort of demand keeps up the pace it is and a couple more closures. I think everyone's talking about gaining market share, yourself included. Now, is that displacing imports? I mean, are imports that big that everyone's gaining market share? Is there any sort of insights you can provide on that? Thanks.

Yeah. Look, a couple of comments. There has been two capacity closures. And you would have seen that in our competitors' results announcements. And you've seen our volumes go up. So not everybody's volumes is growing. So that means we're taking market share. Secondly, on folding box boards or imports folding box board imports, yes, the tariffs helps a little bit, and we have seen that as an opportunity for us as well.

Okay, great. Thank you. And then just going back to passing around graphics, in terms of gaining traction, is that both in North America and Europe, or mainly North America? Because if I just look at the sort of prices that we have available to us, comparing sort of spot in May compared to the Q2 average, Coal and wood-free in Europe is sort of flattish and Coal and mechanical is up about 2%. I'm just trying to tie that back.

Yeah. What I'll do is I'll give Mike and Marco an opportunity to talk broadly in their markets. But as I indicated earlier, all those announcements were effective from April. So we're not in the quarter that we We just announced. But maybe, Mike, you just want to talk on your side?

Code depreciate in North America, April 2nd. We had a price announcement for an increase. And at the same time, we had a slightly smaller increase on C1S, our label grades. So those are as of the 2nd of April. And we're in the process of implementing that.

Yeah, Steve, very similar in Europe, where we announced first half of February for an effective increase beginning of April as well, second of April basically implemented. So you will see it in the coming weeks in, I guess, in the industry pricing stats, Sean. In Europe, there is a second announcement that's Steve alluded to, which we're busy implementing right now. And that's both for our graphics as well as certain packaging and speciality grades. So there is a tendency across the board that prices will increase further.

Okay, great. Thanks. And then just last one from myself, Steve. Do you mind giving sort of any update on what's happening with wood costs in SA? Obviously, you've got the counter to that in terms of the forestry fair value adjustment, but in terms of your sort of wood costs that you're obviously purchasing in at the moment, I'm assuming those are also down.

Yeah, yeah. I'll let Graham talk about it further, but just to re-emphasize what I said there, a lot of the the valuation that we've done and is built off the wood chip prices, the export market. And those are, as we stand, are unchanged in dollars. But when you convert that back to rands, that was why we had the knock. But specifically to the wood that we're buying externally in South Africa, Graham, do you want to talk about it?

Yeah, certainly. third-party contracts for wood supply into our mills in South Africa, that pricing is set off the wood chip export price effectively. And that price was adjusted downwards in the quarter as a result of effectively the stronger rent. So we are seeing lower wood costs offsetting that, certainly into the third quarter, and that's part of the Additional cost there, obviously, is the cost of getting timber to the mills has increased with fuel costs. But certainly third-party purchased wood in South Africa has become cheaper in line with wood chip export prices.

Okay. Thanks, Ramsey. That's it from my side. Cheers.

Thank you. And as a reminder, to ask questions, please press star 11 on your telephone keypad. And we're going to move on to the next question in the queue, which is from Detlef Winkelmann from JP Morgan. Your line is open. Please go ahead.

Hi, guys. Thanks for taking my question. Maybe my first one would be regarding US SPS. I mean, you mentioned that you are taking some market share from everyone else. At the same time, we are seeing, obviously, SPS prices quite depressed at the moment. So I'm wondering, you know, is that... market share gain quality led, i.e. your quality of product is better than everyone else's? Was that being done through pricing? And then secondly, on that, I know there's a period, you know, call it back end of last year, where people are pricing below what we could see in Reefy. I'm just curious if you're seeing any of that in the market at the moment. Thanks.

Yeah. Look, the volume increase on our part, and I'll let Mike go into more detail, it's not us that's been driving the price down. It began to happen before we came to market, and we've been very disciplined. And a lot of the increased volumes that have come through is linked to our offering, the quality of our product, and the relationships that we've been building. And we've talked about it many times. We think we've got the best with the best machines in the industry. And I think the customers are supporting that view. Specifically on pricing below market, Mike, do you want to... I haven't really heard that, no.

Yeah, I'd offer that technically you look at our assets, our product consistency, uniformity, and the overall... SPS that we're making is extremely well received by our customers. Extremely happy, and it's very rare for us to not get follow-up after we've run trials. It's been really well received, and Ford is doing very well in the field. So our growth has been very consistent. Now, when the tariffs first came through, that opened a lot of doors. And we did see quite a bit of opportunity there. But that market is a growth market. It's not a market that's in decline like graphics. So there's a 1% to 3% growth, and we've been seeing things improve. As we stated earlier, right now we are on the curve, and our orders are full. So we're moving forward and we've got to continue to grow that as we improve the machine run ability or the machine uptime, but You know, it's been consistent and You know, I don't know how to frame it any other way If I can ask one more I mean regarding pricing in the US, I mean we're seeing SPS prices and CRB prices

virtually the same I mean I would argue after yield etc you're probably finding SPS is almost cheaper than CRB today yet a higher quality are we seeing any substitution from customers away from CRB into SPS and curious you know is that actually quite easy to do or is it you know quite a decision for for customers to do and there's a cost involved yeah look you are right the prices are very close and and it probably does create some opportunities and

Yeah, Mike, you want to?

Yes, it has. We'll leave it at that.

Yeah, we can't go into detail there, as you know, but it does create opportunities.

All right. Thanks, guys.

Thank you. And we're now moving on to the next question in the queue. And this question comes from Saul Casario from MNG. Your line is open. Please go ahead.

Yes, hi, thanks for taking my question. The first one is on, you mentioned the effects, you singled out the importance in the numbers. I was wondering whether you could kind of single out the impact in the quarter of the effects move, particularly USDSR.

Yeah, look, we've got that bridge, which is obviously to a certain period. I think the best way to think about Forex, specifically Rand dollar. And it's something that we've consistently said and we still think is relevant. And that's for every 10 cents move, Rand dollar, on an annual basis, that's about $4 million. The Rand, Glenn, a year ago in Q2 was? It was, the average rate was $18.50. In Q2 of last year.

Q2 of last year, yeah.

And this one? This one is 1636. So, you know, that's give or take, you know, two rand. You know, you multiply that by 20 by four, and then it's one quarter. So you're talking, in this quarter alone, $20 million just on that, just on the rand dollar exchange rate.

Okay, okay. And also, you know, considering your division results and looking at the results for the chemical cellulose, wondering whether the move in the effects is big enough to shift the position of Psi-Core on the cost curve. We used to think of Psi-Core as the first quartile, but wondering whether that might shift with the effects moving in the wrong direction.

Look, what I would tell you is other currencies have moved as well. The Brazilian real has strengthened substantially. The Chilean currency has strengthened substantially. So in effect, what it does is it moves everybody, including the Chinese. The Chinese are now sitting... with a stronger currency as well. So everything's relative, but I don't think it's grossly changed the relative positioning, but it's certainly squeezed margins across the board. And I think that's another factor that's contributing to the higher selling prices that we're seeing over the last few weeks.

Okay, thanks. And for your Q3, fiscal Q3 guidance, so you've given a sequential cost increase, but not a sequential, let's say, price impact from the various actions in terms of increasing price. I was wondering whether that 30 million that you have provided is net of those price actions or we should factor in, if we have to have a sense of where Q3 might land, we should also factor in some positive coming from the price increases.

Yeah, look, you can imagine. That's a much more delicate number. And it's been, my colleagues and I have talked about our confidence in terms of implementing price increases. I can't give you a specific number. You've got the DP number. You know where markets are at and the math. You can do the math on that one. We are confident on the graphic side. And, you know, all I can say is that if we didn't have the cost increase, we would be sitting here talking about, you know, higher EBITDA. We've been cautious because of that 30 million impact that I talked about. But it would have been higher even in spite of the biggest shot in Gurdwana. We would have still been higher. So that gives you a broad feeling of how much additional will come through in selling price increases.

okay and on this point um do you think that um you know setting aside q3 i was just looking more and more general do you think that overall you might be able to offset that cost inflation with the price increases or it's still tbd is still to be you still have to get there

Look, we're trying. Marcos announced a second price increase in Europe. We're working on that. And, you know, if selling if costs continue to rise, then, you know, I would point to history. And if you look at previous runs on costs over the years, many years in this industry and in this business, it can be it can be over to. higher selling prices. It takes time, right? Your costs go up and you have to respond. And the other thing I would say is a lot of these costs, in fact, it's all linked to the Iranian war. And if there was to be resolution there, then a lot of the costs will come back. You know, sulfur prices, Graham, they've tripled, right? Since the Iranian war, basically.

Yeah, yeah, said

And you've got to believe that these would normalize, and that will relieve the pressure that we're currently facing.

okay and and thank you for that and last one if i can squeeze you you mentioned in your prepared remarks you know the the scramble to get your hands on some raw materials and you talk about so sulfur and latex just wondering whether in terms of inventory days for those raw materials it's we're getting close to The risk of a supply crunch is still far from there. It's still normal level of inventories. If you can comment on that.

Yeah, it's still normal. Eventually you can get your hands on the product, but a lot of it's trapped in the Middle East and sellers are taking advantage of that situation. But we don't have, as we currently stand, we don't have a a risk yet? We don't have any risks on any specific raw materials and our inventory levels are normal, eh?

Yeah, certainly. I think, for example, on sulfur, precisely to avoid that, we bind from multiple sources in smaller parcels and timing when the arrivals happen. We're planning months in advance, but making sure the deliveries and our purchases are staggered so that we don't build excessive in at high prices.

Okay. Thank you. Thank you.

Good luck for the next quarter. Thanks. Thank you. We're now going to move on to the next question in the queue. And this question comes from Zandra Peters from Umbrozo Wealth. Your line is open.

Thank you for taking my questions. First one is in terms of the European restructure. It looks like you've spent less than the $40 million you initially earmarked. Do you have any spend left there? And how are you tracking in terms of the cost-cut benefit fee and the $60 million annualized you were expecting?

Thanks. No, so we've spent most of the plans that we had as far as those closures costs are concerned. There are no large additional restructuring costs coming through in the next two quarters.

And we've realized the benefits that we expected in the timelines that we expected. I don't think there's not been any surprises yet. No.

Thank you. And then just my next question, in terms of volume expectations for the pulp division. Last quarter, we saw some good growth year-on-year versus this quarter. And I understand there was the shafts. What are you expecting in terms of pulp volumes from here on out? What kind of annual amount do you think pulp does in a year, including shafts?

Thank you. Yeah. Look, sometimes you have shipping, timing differences, and so on. We're fully sold out. and our imagery levels are low great demand for the product um and ultimately um you know if you go across the the the three mills um you've got in gadwana around uh 250 um sycor uh we're looking at what's about 850 850 860 um and then and then uh cloquet you know we do make um uh some paper pulp for our paper machines uh there um but in terms of glenn have you got the the number for or mike uh 230 230 for a cloquet so that that would be the annual numbers and uh We're fully sold out. So, you know, sometimes you get a little timing differences, but nothing to worry about.

Thank you. Thank you. And last question from my side. In terms of interest expense throughout the years into the quarter, is there any kind of lumpiness there? I think the expectations from Q2 was up quite a bit from Q1. What do you expect for H2? Thank you.

Yeah, so for Q2, it's $26 million. I expect it to be similar levels for next two quarters.

Thanks, it's all from my side.

And unfortunately, this is all we've got time for today. So I'm now going to hand you over to CEO Steve Beeney for closing remarks.

Thank you, operator. Let me just take this opportunity to Thank everybody for joining us on the call, and we look forward to discussing the results at the end of the next quarter. Thank you.

Okay, this concludes today's conference call. Thank you for participating. You may now disconnect.