Sappi Ltd S/Adr

Good day and thank you for standing by. Welcome to the SAPI Q3 2026 results conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speaker today, CEO Steve Binnie. Please go ahead.

Thank you, operator. Good day to everyone. Thanks for joining. As always, move through the investor presentation, calling out page numbers as we move through. And just quickly starting on page two, I just draw your attention to the comments on forward-looking statements. Moving to page three, which is really just a high level summary of the quarter. It's fair to say that we still have challenging market conditions with volatile economic macro factors taking place, which has had an impact on a number of our costs, which is obviously impacting on the margins. and also selling prices for our products. On top of that, we continue to feel the impact of the strong Rand against the US dollar. On the positive side, I'm pleased with the progress that we're making in North America as we increase our sales volumes on the packaging side, on the SBS side specifically. This is a reminder that the quarter did contain the Ngadwana shut, the annual maintenance shut, which had an impact of $22 million. So all in all, a tough quarter, but we are beginning to see some green shoots and positive momentum on selling prices, and I'll talk a little bit more about that. and Eva Dov, 53 million, which was in line with the guidance that we put out a couple of weeks ago, the revised guidance that we put out a couple of weeks ago. Slide four, just two of the major drivers of performance is the slide we shared before, but the DWP price and the Rand dollar exchange rate do have a significant impact. And as I've said previously, normally they move in opposite directions, unfortunately both And just to highlight the sensitivity there, when you're selling 1.2 million tons plus of DWP a year, a 1% change can have a vast impact. And then on the Rand dollar exchange rate, it's $4 million for every 10 cents. Just a reminder, I know everybody knows this, but two, three years ago it was above 18 rands to the dollar and now closer to 60. So vast impact on the South African business and obviously through profitability. Moving to slide five, just to the more recent movements in dissolving pulp. It was down year on year, but we have seen positive momentum coming through In the quarter, the overall VWP price has risen by 53. A lot of that's not been felt yet in the numbers that we report because there is a little bit of a lag impact. So much of that benefit will be felt in the Q4 numbers, the current quarter that we're in. What is driving those higher prices for dissolving pulp? Well, firstly, on the fibre side, we have seen an increase in various prices of fibre, so that supports a price increase for the raw material, the dissolving pulp. We've also seen costs going up, specifically on the fibre pricing, the polyester fibre as you would imagine is closely linked to petrochemical costs. That's supporting higher prices. The ASF operating rates continue to be good and inventories continue to be low. So all of those things helped. You know, on the negative side, obviously, we, paper bulk prices continue to be relatively low and the uncertainty caused by the The war going on in the Middle East. Then slide six, one very pleasing aspect of our results has been the increased volumes coming through from our North American business. As you know, we made that investment. We were confident in that market. We believed that we could grow the volumes, and we're doing that. We're delivering that. We're gaining market share and we've recorded record volumes in the quarter and there's more to come. We continue to build our customer base. The machine, the new machine, Somerset PM2, as you would imagine, as you ramp up, the efficiencies of the machine get better. There's still more to come and we're pleased with the progress. Also pleased that there has been price increases now coming through. The first one, the first round of price increases has now substantially been reflected in the industry data. I think there'll be more to come and then as As many would be aware, there's been a second round of price increases announced very recently. The benefits of these price increases are not in the numbers yet. Some of it will be built in Q4 and some of that into Q1 of next year. So all in all, I'm feeling good about the progress, volumes rising, selling prices rising, gaining market share. Then turning to slide seven, The graphic paper market, it's our traditional business. On the last call, three months ago, we did spend some time talking about the increases that we had announced. The US, that market is tighter, following our conversion, and we were able to implement a price increase there. In Europe, we announced two. The first one was successful. The second one less so. We felt that we needed to push for it because of the higher costs, but it was more difficult to execute on the second one. So the graphs that you see only really reflect the first one. Europe is more difficult because there is excess capacity, as you know, and we've talked about that many times. The Jennings Bridge on page 8, I'm not going to go into detail, The big story here is that we are seeing the lowest selling prices coming through. And bear in mind, this is a year-on-year comparison. So year-on-year, across many of our product categories, they are less. They are improving quarter-on-quarter, but year-on-year were less. And then the currency conversion having a significant impact. Some of that is a lot of great work that we're doing on costs, and I'll talk a little bit more about that in a future slide. Just page 9, on costs generally, we have seen headwinds, right? The wood costs in Europe, North America, not in South Africa, but certainly in those regions But the big drivers of higher costs have been chemicals and delivery costs, and a lot of that's linked to the war in the Middle East. And we specifically, at the bottom of this slide, we quote some of the specific raw materials that have gone up, and we do have a slide specifically on sulfur, which is the biggest one. Other costs, like pulp, relatively stable, which have helped. and their proactive work that we're doing on taking costs out of our business have been able to mitigate some of this impact. So slide 10, we thought it would be useful to share with you. This is the sulfur price. And you can see a commodity that was below $200 a ton. It's jumped all the way up to close to $1,200. Just to put it in context for you, we quantified its impact. This is a year-on-year impact for the 26 financial year, $350 million just on that one raw material. So you can see it's a vast impact and hopefully when the markets normalize, there will be a potential reduction in these costs. Having said that, we are not resting on that and we are looking at alternatives to mitigate much of this impact or some of this impact. Similarly, on page 11, the logistics costs, the war has caused higher shipping costs, higher diesel costs. Specifically on delivery itself, We estimate this year will be 106 million but that's only on the direct delivery cost of the South African business. It doesn't include the forestry, the logistics, it doesn't include the other regions but I know there's been a lot of focus on specific and on South Africa and we thought it would be useful to share that information. Site 12 has our net debt to EBITDA and Obviously on the back of lower profitability, it's meant that the leverage ratio has increased. On the debt side, interestingly, you can see we've kept it relatively flat and I think that's a great effort on the back of the lower profitability. So it shows you that the actions that we're taking are reaping rewards and you see the benefits going through there. Specifically on the The Leverage Covenant, as you know and we announced last quarter, that's suspended until March 27. We continue to have strong relationships with our banks and they support the business, they understand the headwinds that we've been facing and I'm confident they will continue to be supportive into next year as well. Then on page 13, The debt maturity profile. I think the first important point to highlight is that we have substantial liquidity and reserves on hand and facilities on hand. That's on the left-hand side of the graph. On the right-hand side, the first big material debt refinancing is the 2028 and that's something we will monitor as we get closer to that maturity period. But otherwise, liquidity looks good despite the lower profitability. Then on slide 14, just again highlighting the same points that I've already raised, a disciplined approach to capital allocation despite the lower profits, only a small outflow and then as part of that the capex we're estimating 240 this year as I've mentioned previously we've pulled back on any expansionary capex this is focused on maintenance and essential capex we're not putting our assets at risk this is what we believe that we can reduce it to and maintain the quality of our assets Site 15 is our Thrive Strategy. I don't intend going into detail. It is a schedule we've seen many times. The emphasis shifts and at the moment with the back to basics focus, our priorities have to be on driving operational excellence, lowering our cost base, improving production and then ultimately sustaining our financial health with The number one priority to reduce debt Slide 16 takes us to another level and we call them our self-help pillars and I don't intend going through all these bullets but just to highlight a few in terms of optimizing our portfolio Somerset progressing very nicely and we're excited about the prospects ahead The work that we've done on the joint venture, and I've got a slide on that, but we're confident that that joint venture will bring substantial synergies and we were thrilled that the shareholders supported the transaction in the recent vote. We got 98.5% vote and we were pleased with that and We believe that this is the right course of action for our European business. We've been putting through selling price increases across all our key segments. It takes time, and yes, some of it is to offset higher costs, but market conditions in some of the segments are better, are getting better. And I specifically call that the US SPS market. The disciplined allocation Capital guides our principles. A number of these points I've already talked about. The one that we are excited about and we have been proactive, we've been able to take 120 million of costs out of our business. And I know that doesn't show up in the overall profits because of the other headwinds, but these are real actions that we have taken to mitigate Much of that impact of those headwinds. The savings are across the regions and include fixed costs and variable costs. Specifically on Europe, and that, by the way, the 29 is in the 129. Specifically in Europe, we've done a lot of great work to reduce our fixed cost base. And then deleveraging. I've said it once, I've said it twice, I've said it many times. Number one priority is to reduce debt. It's going to take some time because we need to get the profits back to normalised levels, but with the discipline around capital allocation and the improved profitability that we anticipate in the quarter and the year ahead, we will begin on that path and we will remain committed to getting our debt back to a manageable and more reasonable levels. Then on slide 17, again it's a, there's quite a bit of detail and I don't intend going through everything but just on the packaging side, we've got a strong business, a strong platform in North America, great assets and you can see the evidence of our ability to grow the portfolio. In dissolving leadership position with a strong influence on our profitability, a non-integrated supplier with long-term relationships and well established for increased profitability that we envisage will come in the future. And then graphics, we know that graphics demand is in structural decline. We've been proactive by proposing this joint venture with UPM. We think it will deliver substantial synergies and ultimately preserve flexibility for future up-site basements. And then on the joint venture, Page 18. We've already achieved a number of milestones. The big one, and we've talked about it previously, the big one is to get approval from the competition authorities and the big one there is Europe. That process is progressing and we're still feeling good about fulfilling the conditions by the end of 2026. Starting to the segments. Firstly, pulp. Underlying demand is good. I've mentioned it a couple of times. We have been impacted by the lower selling prices year on year and the Rand dollar exchange rate. But other shorter term dynamics have meant that we have seen an increase in price in the quarter. Just important to point out, the Ingrid Wanner shot was in this quarter as well. The next segment is on page 21, the packaging. We've gone through a tough period. The markets here globally have been tough. Excess capacity in Europe. We've had the project that we undertook at Somerset. And then more specifically in this quarter, the South African Business was impacted by the shutdown in Ljubljana. Looking forward, underlying demand for container board in South Africa is good. And we were starting to see global container board, certainly in North America and a little bit in Europe now starting to come through. Hopefully that will all be beneficial for pricing in the South African environment. And then we anticipate Thank you very much. In a more resilient or a more in balance position following our conversion and that will boost profitability and also seasonally Q3 is a lower quarter for graphics and normally Q4 is our bigger quarter. Slide 23 has the regions, I don't intend going through that, the big themes coming through here is lower selling prices year on year but Starting to rise quarterly and that's the overriding story with regards to the margins and a great ramp up on volumes in North America. Then on the outlook. Firstly, demand. I talked a few times over obviously about dissolving pulp being healthy and packaging ramping up as I referred to. Prices moving slowly in the right direction which will support profits going forward but importantly we're not just sitting back and doing nothing on the cost front and we've been proactive at taking costs out and we'll continue to look at opportunities across all our regions and if you move to slide 26 we are targeting further Operational Efficiency Improvement and Fixed Cost Reductions. We're going to finish the proposed joint venture as I referred to earlier. So taking that all into account, we do have a smaller shut in the quarter at Somerset, but it is smaller. But taking everything into account, and the improved conditions, the fact that we don't have a major shut, a higher dissolving pulp price coming through. Based on all of that, our guidance for the quarter is that Q4 will be materially above the Q3 numbers. So, operator, let me go through the presentation. I'm now going to hand it back to you for questions.

Thank you. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Please stand by as we compile a Q&A roster. Our first question comes from the line of Sean Ungerer of Chronux Research. Please go ahead. Your line is open.

Good afternoon, Steve.

Can you hear me?

Yes, we can. Great. Thanks for the update, Steve. Just turning to the fourth quarter guidance in terms of being materially up quarter and quarter, that's great news. What is your sort of threshold on significant materiality? And I guess there was no specific reference to Q4 last year where I think the print was about $111 million.

Yeah, sure. Look, the market conditions a year ago were very different, so we didn't think it was appropriate to reference it against that. I'm not going to give you a specific number, but what I would highlight to you, if you use the current quarter as a starting point, you don't have to be in the Guana shot. You've got a higher DP average price and improved volumes coming through in North America. So, you know, when you combine all of that together, You know, that should give you a rough feel of the kind of territory that we're talking. I can't get more specific than that, but it will be materially higher than Q3.

Okay, I appreciate that. Thanks, Steve. And then just in terms of commentary around normalised profits to sort of bring net debt down, I guess the million dollar question is when do you anticipate normalised profits again?

Yeah, look, it's too early to call next financial year, but If you do the math and you work backwards, you've got a maintenance capex number of around 250 and an interest bill and a tax bill. It's clear that to begin paying down debt, you have to get close to $500 million of EBITDA. That needs to be the immediate target. I'm not giving guidance. I'm purely giving you maths on and a number of others. So, that's our initial target, and I think that market conditions are improving, but it's not clear as we sit here today when we can get to that number.

Okay, perfect. Thank you. And then just North America on the SPS price increases. So, just to confirm, in the current quarter, there was no benefit from higher pricing. Is that correct? And then perhaps if you could just I know you did mention the further benefit in Q4 and Q1, but are you able to sort of give us any sort of weighting towards those quarters?

Look, there's no benefit in the Q3 numbers, none. The first announcement was $60 a tonne. It's not all come through yet on the REITI numbers. I think it's fair to say that a proportion of that will be Realized in Q4 and then the balance in Q1. So, you know, some of the contracts are linked and some of them are based on spot pricing. So, it takes time to realize. So, there's typically a two or three month lag.

Okay, got it. And then Steve, just in terms of the cost base, we appreciate a couple of the slides to explain the sort of cross-pressures you have been experiencing across the business. I think the numbers quoted are sort of for the full year impact, right? But just to confirm, I think most of these sort of pressures only started floating through in the third quarter and obviously are going to be in Q4 with H1 fairly clean or was that an incorrect assumption?

Yeah, at a high level, and you'll recall our last results announcement, we had a substantial increase in costs in Q3, and there is incremental increases in Q4 as well. But the jump is not of the same magnitude that we experienced from Q2 to Q3. But there is further costs, and that's part of our outlook guidance. You know, that's been taken into account.

Okay, perfect.

If you ask me more clearly, most of that cost increase has been in the second half of the year.

Yeah, okay, perfect. And in just some terms of SHAPs for next year, I know you don't want to provide any guidance, but sort of based on my numbers, the impact on EBITDA is likely to be similar-ish. compared to FY26, whereas obviously FY26 was a lot lower than last year. Is that a reasonable assumption at this stage?

Yeah, broadly that's great. Our North American mills are on an 18-month shut, so you rotate the quarters for those two, and then in South Africa, broadly in line, right? Oh, oh, yeah, sorry. The team are just reminding me that the Ingridwana shut for next year will only occur in October, Graeme. So there will not be an Ingridwana shut in financial year 27.

Yeah, yeah, okay, perfect. That's great. And then this last one, perhaps just for Graeme, just in terms of the net operating capital for the fourth quarter, normally we see quite a sizable inflow. How should we be thinking about that for this quarter? Is that sort of in line with last year, or perhaps you can share some insight?

Yeah, Sean, it's Glen here. So, you're right, we do usually see a net inflow. We're anticipating a slight outflow this quarter, this year, and that's really because of the ramp-up that you're seeing in our operations, the increase in prices, and we've Thank you.

We will now take our next question. Please stand by. Our next question comes from the line of Brian Morgan of RMB Morgan Stanley. Please go ahead. Your line is open.

Hi, guys. Good afternoon. Thanks for the time. Can I just ask on the 2028 bonds, when does that window open? And just chat to us maybe a little bit about your strategy in that regard. Would you be looking to refi those bonds? Could you do term debts? Just what do you think in that regard?

Glen, do you want to take that?

Yeah. In terms of refinancing, we're constantly monitoring the market. We will want to refinance it at least a year before the time, so it's in April 2028 that it matures. The window is a two-year window prior to that, so we're looking at it, Brian.

So at least April 2027? Early 2027.

Brian, to the other part of your question,

Our primary, you know, we have to get to that refinancing, but our goal would be to refinance it with bonds, yes.

With bonds, okay, that's fine. Can you give us a little bit of colour on the SBS market as you see it? You guys are adding quite a lot of capacity into that market. There's not a lot of capacity coming out of that market. The industry has been able to pass through price increases. It's a lower operating rate environment. Is demand just that strong? How should we interpret this ability to put through price increases?

I'll briefly answer and then I'll let Mike elaborate further. Just growing, there has been capacity come up and I don't like naming other competitors, but two competitors have taken capacity out. In terms of the demand side, we have seen a pickup, but Mike, maybe you want to just go into elaborate further.

Steve, I think you are correct. So two competitors have taken assets out of the SPS market in North America. We continue to expect and we continue to see a growth of You know, the one to two percent. And in addition to that, there's been another mill that's been down on the West Coast, you know, due to failure. And I think all that has had an impact on the market. Our market orders specifically have been continuing to grow and the machine's running well. and now we're working to speed up as we planned and right now we've kept all our assets full on SDS.

Okay, cool. Thank you. And just to confirm, you've received all your customer approvals now?

I'm not sure of the question. Qualification for all of our products? All our base products are going very well and we've introduced several other products to the market such as an oil and grease resistant and those types of things which are still in the process of being qualified but those are new products to the market as opposed to the standard products.

Sorry, Brian, just one other comment. I mean, typically in the industry, as you gain new customers, they do want to trial the product on the machine. And so you may be making it for another customer, but they do go through trials. So that happens all the time.

Yeah, better put, Steve. You know, we do have to qualify with brand new customers, but the majority of that has been accomplished at this stage.

That's cool. So thanks. Thanks very much, guys. And just on DWP, we've seen, we've seen net net tax at all prices drop in the last couple of weeks by around $20. Does this sort of cap the upside to DWP in the short run?

Yeah, look, it's an interesting question, Brian, and I'll let Mohamed jump in after I do. Look, there are numerous positives, and I highlighted them earlier. The one negative has been these lower paper poll prices. But, you know, just to re-emphasize once again that there are Only a limited number of players who can use paper pulp in their viscose manufacturing process. And that kind of puts a cap on it. And similarly, swing capacity on the DWP producer side, there's only so many machines that can do that swing capacity. And a lot of that's already have been directed to DWP. So it is a negative factor, but it is somewhat limited in terms of its influence. But Mohamed, maybe you can talk more broadly.

Yeah, Steve, I would just add to what you're saying is that, you know, the VSF industry in China, in fact outside of China also, the operating rates have continued to remain very very high low infantry levels and the value of those very high operating rates even though we are now in a seasonally slow time means that from a quality perspective dissolving wood pulp makes it easier for the guys to run harder so with demand being good for fibre I think the need for running let's say higher quality raw material Thanks guys, appreciate the time.

Thank you. We will now take our next question. Please stand by. Our next question comes from the line of James Twyman of Prescient. Please go ahead. Your line is open.

Thank you very much and thank you for the presentation. The first question is, Steve, the covenants with the banks are until March. Could you give us some idea of sort of when the timing is Thank you for extending that and how long you would plan to extend that by. And related to that, how much of your debt would you say is subject to those covenants?

On the first one, we're in constant contact with our banks. We have great relationships with them. We share our estimates with them. continue to be very supportive so in terms of what would happen in 27 after the government come back we would we would be proactive we've always been proactive and we will ensure that we have sufficient flexibility in next year when when we come out of that suspension period and that's what that you know is an ongoing and we're doing that already. In terms of the Covenant itself, Glen, it's specifically the RCF, right? Yes, it's linked to the RCF. And the OEKV.

And the OEKV, yes.

So it's the RCF facility and the OEKV lot.

Okay, great. Thank you very much. Would you expect us to have an idea of the extension this year or this financial year? What are your thoughts on that?

Look, it's an ongoing process, James. I didn't say extension, you said extension. What I was saying is that we will have flexibility based on The outlook for our profitability next year. And we are going through a process to put that in place. It's difficult to give an exact date, but it will be hopefully very soon.

Okay, thank you. And then in the US, obviously, as you mentioned, you know, you're expecting a much stronger fourth quarter as PM2 ramps up and prices are picking up. There is always this big seasonality element as well and I just wondered if you could talk about that impact because sometimes we get a huge seasonal impact and sometimes we get a really small one and it sort of depends on where your inventory levels and other factors. So, you know, is that an additional factor that you would see helping in the US?

Thank you. Mike, do you want to take that seasonality question?

So there is a bit of seasonality, but it was more driven by graphics historically. So I think we're going to see less of an overall seasonality impact with the balance between our pulp business, our SBS business, and our graphics business than what we've seen in the past. Although there always seems to be a bit of seasonality around the holidays in the U.S.

Okay, thank you. If I could just ask one more. Over the years you've always talked about cost-cutting as a general part of what you do and you often talk about $50 million or euros of cost-cutting each year being something that seems to keep happening. You're talking about 120 this time and you've said that without a lot of fanfare. It's a huge number. Could you talk about really about whether that's all in the base because I think in the presentation you talk about that being a year-to-date number. I'm sure it's annual year-to-date or something but is there more to come there and could you give us a bit more detail on that because around the 29 million of savings in Europe from you know restructuring but this 120 is a very big number to be happening.

Yeah indeed. Roughly, it's about half fixed costs, variable costs. The fixed costs, a big chunk, as we've indicated, is in Europe, but there are fixed cost savings in the US and in South Africa as well. On the variable cost side, a significant proportion of that and other cost saving initiatives on raw materials. You know, once again, you know, it's across the regions, but Europe is probably the largest of the three regions that make up the variable cost. I think going forward, to the broader question, you know, we can't relax. We've got these headwinds, we've got to continue to look for opportunities. And more specifically, in South Africa, because with the stronger rent, it's put pressure on us. And Graeme, I'll come to you now, but, you know, we... We are being proactive but looking at usage and alternate raw materials which can build a more resilient South African business with the headwinds that we're facing. So, you know, Graeme, you know, obviously we can't give specific numbers but broadly the areas that we're looking at at the moment.

That's certainly. Obviously the best starting point is the highest expenditure areas, or those areas where we've seen the highest growth in costs over time. So timber, I think, although obviously market price has declined, and you can see it in our fair value accounting, we need to adjust our forestry costs in line, our own forestry costs in line with what we see from a market price point of view. and then our highest raw material costs focusing both on usage and as Steve has said can we use potentially a lower quality, lower priced version of that material and understanding the pros and cons on our production process and then benchmarking ourselves against and our own best performances but also sort of best in class and saying how do we drive ourselves, what do we need to change from an operational point of view to get there. So we're looking for long term sustainable changes to our cost base in South Africa, try and get our dollar costs down to where they were five or six years ago I guess.

So coming back to your question, I think when we go into 27, this is going to be a big area of focus for the business.

Yeah, okay, impressive. So the 120 you've talked about is an annual lumber and would you say that that part of the cost cutting is in the base for last quarter?

Yes, yes it is.

Okay, and then just related to that, you mentioned usage a few times. Could you just say what you mean by usage? Is it, you know, less wastage or sort of operational factors? What do you mean by that? Because that's clearly something where you've made quite a bit of headway.

Yeah, so typically for us, for example, at Asarquamil, how much sulphur do we use per tonne of pulp produced and, you know, what Back to Basics approach, what should you be using relative to what you are using, where is there waste, or where are you overusing and can compensate somewhere else to reduce that. So it is a typical use for patent of any raw material I guess in the production process.

Okay, and if I may just one more, in terms of dissolving pulp, obviously there is weakness Did you envisage that the market in DWP is tight enough to actually get the premium, you know, picking up significantly to offset any weakness that we're seeing?

Yeah, look, it's a good question. We obviously saw the rise and more recently it's kind of stabilised just around 900, just below 900. I think as a seasonally slower time, So we're not anticipating any increases in the next short period of time. We've got to get through this quiet period and then assess the market conditions beyond that. Mohamed, I don't know if there's anything else you want to add there?

Yeah, Steve, just to again really emphasise that it is and many more. We have a seasonal feature that we are seeing in the BP and BISCOS market. But just to point out that even though we are in a seasonal slow time, operating rates remain at historically high levels. Even going through the seasonal slow time, the Fiber inventory levels across the value chain also remains very, very low and as we come out of the seasonal slow time, as we get towards the end of August into September, again historically what we've seen is that the duty prices start to move up again. So that's what the history tells us and the supporting factors that I've just mentioned tend to indicate that we have a good chance of history repealing itself as we get towards the end of September.

Okay, thank you very much indeed for all of that.

Thanks.

Thank you. We will now take our next question. Please stand by. Our next question comes from the line of Detlef Winkelmann of JPMorgan. Please go ahead. Your line is open.

Hi guys. Maybe my first one would just be regarding Somerset PPM2 ramp up. Are you able to share roughly kind of where you're at right now in terms of operating rates? You know, relatively close, not close at all relative to EBITDA breakeven, any kind of colour you can share? And then even within that, kind of expectations as to when we should expect EBITDA breakeven?

Look, there's a couple of questions there, Dylan. I think firstly, in terms of the operating rates, we are in the quarter that we've just been in. We're at about 75%, and we're anticipating closer to 85% in the fourth quarter. So we're ramping up nicely. In terms of breakeven, we don't give the specific numbers, but the North American packaging business was positive.

Okay, thank you. And then maybe one other one just on this whole, you know, SES tightness at the moment that we're seeing. You know, if I recall back to Q1, calendar year Q1, you know, peer results, everyone was telling us that Clb was relatively tight, Sbs was quite loose, but the Sbs price relative Clb was relatively compressed, so we might see some substitution by customers. It looks as if we've seen that, I mean obviously commentaries now that Sbs is looking a bit better, but at the same time a lot of the peers are saying Clb is looking a bit worse. So I'm just curious in terms of, you know, is this a temporary shift? Is this something that could reverse, you know, if FBS price increases go too far? Just curious how to think about this going forward. Thanks very much.

Yeah. Again, once again, I'll go, I'll come over to Mike just now. Just from our side, it's not had a material impact on our results, the switch to CRP. There's been a tiny amount, but our focus has been on existing SBS customers and that's where we've taken market share. So, Mark, I don't know if...

I think that's accurate for us. You know, I think if you think about it in this way, there's a small portion of customers, if you want to call them price sensitive, that might move Back and forth based on on their advantage and you know CRB announced the pricing increase within the last week certainly doesn't doesn't not something that we're selling directly into but so clearly that business maybe is improving also but for North America You know, that hasn't really been our target. There might have been a little bit, but, you know, I'm not sure that that's a huge influence on SAPI. Okay.

Thank you.

Thank you. We will now take our next question. Please stand by. Our next question comes from the line of Cole Hathorne of Jefferies. Please go ahead. Your line is open.

Thanks for taking my question. I've got a couple on my side. I'll take them one by one. Firstly, it's just on dissolving pulp. I'm just wondering, have any of the changes and restructurings at Lensing impacting your business, just like your thoughts of how it might or might not impact SAPI? Then second is one probably for Graeme. I'd just like to follow up on how you're going to improve the South African wood sourcing Thank you very much.

On the first question, lensing closures, it's only just been announced and we need to have dialogue with them. But net-net, we're not worried about it. We think we can, if there is lower volumes, I don't think it's that material, but if there is lower volumes, we are confident that we can place that in the Chinese market at a better price for sappy. Mohamed, I don't know.

Yeah, Steve, I would agree with that. And also, you know, we have the flexibility of also making, you know, more paper cards if we choose to do that.

Yeah, yeah, that's true. Graeme, on additional wood sources,

Yeah, I think there's a number of elements. Some have been a long time in coming. Obviously as we've changed our South African business over the last 10 or so years, the mix of bulls and the mix of products, we've been steadily converting softwood plantations to hardwood and that's meant that over time our self-sufficiency and other suppliers. Current market conditions globally, you're absolutely right, generally timber prices have trended upwards globally over a long time, but right now there's a, with what's going on in China and pressure on market pulp prices, we have seen a weakening in timber wood chip prices in, I guess we call it the Asia Pacific region, and that's allowing us to renegotiate and longer term contracts where we were purchasing from external parties. And then in the very short term, prior to these diesel increases, we'd already started looking at electric trucks and they were offering good savings even prior to the diesel price increases that we've seen. So the opportunity to convert Thank you and then

You know, I always find it interesting when someone puts in a chart on sulfur when none of your competitors have put it out. I mean, I always think about caustic soda, but, you know, wrongly, you don't quite think about sulfur for the white and black liquors. I'm just wondering, does dissolving pulp use more sulfur in the mix than other traditional pulp, and that's why you're highlighting it, or... Is there something to be aware of on particularly calling out the sulphurs, just as an aside? But the other question is on North America, which is on the demand side and coated papers. Is there any potential boost ahead of the mid-term marketing, things that we should be aware of that is ultimately going to allow the utilization rates of a full mill system to be a bit better in North America?

Thank you. Graeme will talk about the sulphur usage and Mike I'll come back to you on the midterm elections.

Yeah I think obviously the key thing for us is that Sycor is a sulphate pulp mill so inherently they do use sulphur whereas a typical craft pulp mill wouldn't. You do get other sulphate mills across the world but they may be set up to use SO2 gas and not And then Mike on the midterms.

I'd say that we haven't seen a huge impact in midterms, but the truth is our graphic machines are running full. We haven't We don't have any underutilization, so I'm not sure where you're getting that thought from, but our graphics have been running full and I think the business is still very steady.

It was just more of a comment just to make sure all the books are good and, you know, if you get more orders, it's always helpful, even if you have to put people on extended lead times. But thank you for all the color.

Absolutely true. But, yeah. I think there might, you know, as we get closer to elections, you might see a boost more on the sheet side of business.

Thank you. Thank you. We have reached the end of time allocated for the call and I will now pass back to Steve Binnie for closing remarks.

Thanks, Operator. Once again, let me just thank everybody for joining us on the call today and we look forward to discussing our year-end results with everyone in three months' time. Thank you very much.

This concludes today's conference call. Thank you for participating. You may now disconnect.