Earnings Transcript for SPPJY - Q3 Fiscal Year 2024

Steve Binnie: Good day everybody, thanks for joining us for the Results Call. As always, I'll go through the Investor Presentation which has been made available to you. I will call out the page numbers as I move through it. I'm going to start on Page 3, which has got some of the highlights for the quarter. All-in-all, a satisfactory quarter, in line with the expectations, in line with the guidance that we provided. I think we're making good progress year-on-year, EBITDA up 40%. So obviously, we've continued the recovery from the lows of last year. In terms of the segments themselves, and we will go into a little bit more detail. But on the pulp side, strong market conditions, good demand, and further upward movement in pricing. Paper side, muted recovery. Packaging volumes continue to increase, and we would expect to see more of that as we move forward. Graphics seems to be leveling off now at a new level, obviously, post the declines that we've seen in the last couple of years, it seems to be leveling off, albeit that we know that seasonally, Q4 is a stronger quarter than Q3. Pleased to say that the Stockstadt Mill was concluded in the quarter, we had proceeds of US$49 million, and all-in-all, the net cash generated for the quarter was $32 million, which is pleasing for us. Slide 4 has the product contribution splits, and obviously, this is a longer term trend line. The big story is obviously on the right hand side that we continue to reduce exposure to graphics. We're well below 50% now being graphics, and obviously, we've got a couple of projects underway which will take that even lower, and I've talked about this before. Probably by the time we get to 2027, the target is to get that below 30%, increasing contributions from our higher growth margin segments. The EBITDA, a little bit, fluctuations, obviously, in terms of the macroeconomic conditions. Specifically, in the quarter, obviously, on the packaging side, we had the big Somerset shut, which would have impacted on the contribution from packaging. Moving to Page 5, the bridge earnings last year relative to this year. Firstly, recovery in volumes, particularly, obviously, in the paper segments, which has contributed to that. We did see some negative pricing and mix. The pricing, mainly in the packaging segment, where we did see some downward pressure, but in pulp, as I said, positive. Savings in variable costs coming through, albeit that pulp, and all of you will know this, that paper pulp prices have been higher in recent quarters, albeit that they've just started to come down again. Adding on some fixed cost adjustments relative to last year associated with the shut, giving us the EBITDA of US$151 million that you've seen quarter-on-quarter. Moving to the input costs, and this is a three-year trend line. Obviously, off the highs in 2022. We saw declines in costs, but then more recently, pulp rising and the other categories relatively flat, all in, 2% quarter-on-quarter increase in variable costs. As I said, pulp is leveling off and in fact, we're anticipating pulp to start coming down again, but most of that benefit will, because there's a bit of a time lag, will be felt in the new financial year. Page 7 has our leverage over time and our net debt levels. As I said earlier, positive move in net debt on the quarter, obviously, we're higher than a year ago because we had to fund the expansion and conversion project at Somerset, and then more recently, we had the closure at Lanaken. So we had to fund those, but a strong focus on getting that debt number back down close to the $1 billion level. Moving to Slide 8, has our debt maturity profile. It's on the change, obviously, relative to the last quarter. Perhaps the largest sizable refinancing or maturity is on our 2026 euro bonds. There's EUR240 million outstanding. We obviously continue to monitor. Obviously, when we did issue those bonds, it was at a level of 3.125%, so it's very favorable. So keeping it running a little bit longer does help. And it's a big maturity, but it can be managed. So we'll pick the optimal time for that. Moving to Slide 9, just looking at the cash flow from a generation perspective, obviously, in the current year, the free cash flow continues to be healthy. Obviously, at the bottom line, negative, but that's linked to what I talked about earlier, the CapEx and the closure of Lanaken. And obviously, we declared a dividend in the current year. CapEx, we've got it down a little bit relative to the last quarter. We brought it down to US$480. Some of the projects that we were undertaking, we've deferred into next year because they don't have an impact on operations. The biggest part of it is Somerset, and that's on track, so under control and no surprises in the number. Page 10, we continue to be disciplined in our capital allocation with a strong focus on getting the debt back close to US$1 billion. We've got to see through the Somerset project, which is going well. Thereafter, we haven't committed to any other major CapEx, so we will start generating cash when that project is completed. We obviously reduced exposure to graphics with the two mill closures, Stockstadt and Lanaken. On the pulp side, we've made the investments in Gratkorn to give us wet strength label capabilities that will be finished in September, and the Somerset expansion conversion, which will be finished in April next year. The net effect of those two is effectively like taking two mills, two machines out of coated woodfree, and obviously pushing us into a higher margin, higher growth segment. On top of that, Somerset giving us the extra volume, so there will be growth on the top line associated with that too. Moving to segmental overview, and Page 12, the pulp segment. Within that, obviously, the main driver is dissolving pulp. As I said, favorable conditions, strong demand, no new supply coming, prices favorable, so we are feeling pretty good about the market conditions there. It's a tight market. Offsetting that BCTMP, we sell some tons into the BCTMP market from Matane. That market has been tougher, and that's what impacted on the margin. Having said that, just remember when we complete the Somerset conversion, we are going to be supplying additional BCTMP to the Saiccor mills, so we are going to be less exposed to external markets. We also did have the Matane shut in the quarter, actually which also impacted on margin, and we had a [indiscernible], which impacted. Moving to packaging, obviously, there was a big drop in margin from what we've seen recently, but we had the 18-month extended shut at Somerset, which would have impacted. At the same time, we did have some production issues at Somerset, not linked to the shut itself, but those impacted on volumes. They're now behind us, and we're feeling good about the prospects in North America for the fourth quarter. Europe, mixed, obviously, it's still difficult in Europe. The economy is still challenging, but there are pockets of improvement, and we called out two there on the slide, labels and self-adhesive. The labels is good, obviously because we're getting close to the completion of the project at Gratkorn. In South Africa, generally good. The container board demand was a little bit worse than we had thought it was going to be, but underlying demand continues to be strong. Then on graphics, on Page 14, as I said, we have seen recovery from the very lows of last year, but it now feels like it's leveling off. We will have a little bit of seasonal benefit in Q4, but it does look like it's leveling off at around the 500,000 ton mark per quarter. There's a little bit of negative macroeconomic factors at play, but I don't think we're going to get much substantial improvement from here. Having said that, obviously because of Somerset, us taking out that capacity when we complete the conversion, that will reduce our exposure. Similarly at Gratkorn and post us closing the two mills earlier this year, we're relatively full there. So the margins actually, at 9%, are reasonably healthy and at normalized levels. Turning to Page 15, the geographic segments. Firstly, I'm obviously pleased that the volumes are positive in each of the regions year-on-year, but I did call out, obviously, graphics leveling off now. Selling prices, we did see a little bit of negative pressure in the packaging segment, and that's what impacted the numbers in the European and North American regions. The margins, South Africa healthy, North America obviously impacted by the Somerset shut, but should get back to normal levels. And then, as we've called out, the Europeans lagging, but hopefully some improvement will come through as the packaging and speciality improves moving forward. You see all of this graphically on Page 16. So I'm not going to repeat it, but you can see that healthy in South Africa, a little bit down in North America, but recovery coming, and then Europe still subdued. Then onto Slide 17, the Thrive, strategy that we have. We shared this with you many times. It doesn't change quarter-by-quarter. We continue to focus across the four pillars. On the operational excellence, obviously, very pleased with the progress that we made, and after closing Lanaken and Stockstadt, moving that volumes across, that improves our operating rates in the coated woodfree machines in Europe, and then across each of the regions, a strong focus on maximizing production. In South Africa, we continue to look for opportunities to increase our forestry footprint. These are not material acquisitions, but we continue to look for opportunities, and we added a couple of acquisitions, and that's the CapEx numbers that you've seen. The enhancing trust, firstly, pleased that we maintained our Level 1 BE compliance. We think our sustainability positioning puts us in a strong competitive space, and as I've talked about previously, we've probably got about US$60 to US$70 million over the next few years to continue to improve on our environmental footprint. The growth of the business, in the short term, it's built around the two projects that we've got at Gratkorn and Somerset, and as you heard earlier, those are going well. And then in terms of sustaining our financial health, committed to getting that debt back downwards post the Somerset project, and as I say, we haven't committed any large CapEx beyond that. Slide 18, moving on to sustainability, very proud that we got another EcoVadis' Platinum Award across all three manufacturing regions, getting the highest rating, six consecutive year, ranks us in the top 1% in our segment. Then moving to the outlook, which is on Slide 20. It's fair to say that there's still challenging macroeconomic conditions out there. Interest rates are high, but hopefully they will come off at some point, but there is volatility out there. DP markets, I've talked about a couple of times on the call, still favorable conditions. On the graphic side, a little bit of seasonal recovery, but as I say, we're probably at the new normalized levels after the recent volatility over the last two years. Packaging markets continuing to improve, feeling very good about North America and South Africa, Europe lagging, but we are seeing certain categories, as I said earlier, showing positive signs. On the cost side, chemical costs, there could be a little bit of inflation coming through, but on the positive side, it does look like pulp prices may have peaked, and they are expected to reduce in coming months, which will benefit our paper business in the new financial year. Slide 21, we continue to focus on margin management, obviously taking into account our costs and ensuring that we can protect margins. The guidance for Q4, well, firstly, we have the plantation fair value adjustment. There was a very recent reduction in wood prices in South Africa, which means you're going to have a negative fair value adjustment in the fourth quarter, which offset much of the positive from earlier in the year. And taking that out of it, we anticipate that the EBITDA for the fourth quarter will be above the same quarter of last year. So further progress on our road to recovery and feeling positive about the quarter. Operator, that's me going through the presentation. I'm going to hand it now back to you for questions.

Operator: Thank you so much, dear participants. [Operator Instructions] And now we're going to take our first question, and it comes from a line of James Twyman from Prescient. Your line is open. Please ask a question.

James Twyman: Yes, hello. Thank you very much for the presentation. I've got three short ones, if I may, just to kick off with. The first one is, in terms of CapEx, where do you see that in next year? Do you think that'll be similar to this year or maybe a bit higher or lower, just given that the Somerset expansion cost is still going to be fairly similar? Secondly, is there any restructuring cash flow in Q4, either positive or negative? I can't see anything substantial. It seems either to be in Q3 that we've had or coming in Q1. And then, are there any further energy credit possibilities? Others have had them. You obviously got a big one in Q1 this last year, but I just wondered if there's anything else that you could get there. Thank you.

Steve Binnie : Yeah, I'll take the first one, and Glen will take the second and third ones. Yeah, on the CapEx, you're right. There's a similar number coming through from Somerset next year. So, yeah, we're still finalizing our budgets. But overall, as I look at it, it's likely to be a similar number to the current, obviously, predominantly around the Somerset project. Glen?

Glen Pearce: Good. James, just in terms of the restructuring cost, there will be some minor costs coming through in the fourth quarter, but the bulk of them have come through, so it won't be anything substantial. And then in terms of the energy credits, we don't have any energy credits for the fourth quarter, no.

James Twyman: Okay, thank you.

Operator: Thank you. Now, we're going to take our next question, and it comes from Brian Morgan from RMB. Morgan Stanley, your line is open. Please ask your question.

Brian Morgan: Hi, guys. Thanks very much. With the pulp price cracking in China, can you just chat to us a little bit about how that might feed into DWP? Do you think there's still some swing capacity?

Steve Binnie : I'll start, Brian, and Mohamed can add to what I say. I think, look, on the positive side, the fact that the pulp prices are coming down, as I indicated in the presentation, we think there will be benefits for the paper business to come. On the DP side, so far, no impact and most of the swing capacity has already moved into DP. So, we're not anticipating any sizable further moves away from pulp to DP. And as I said, and you would have got a sense of that, as I went through the presentation, the demand is still robust. There is no new supply, and we're still feeling pretty positive. Mohammed, do you want to add to that?

Mohamed Mansoor : Yeah, Steve, the only thing I would add is that more recently, there's been some further supply side reductions. There's a move that's taken off DP production in Canada. So, that's tightened up supply as well.

Steve Binnie : Yeah, there's been a disconnect now between the paper pulp and dissolving pulp. And as I said, most of the capacity that would come across has already done so.

Brian Morgan: Okay, cool. Thanks, Steve. Then can I ask on paper pulp, now with Lanaken and Stockstadt closed, what's your net short position in Europe?

Steve Binnie : We are about 600,000 tons in Europe and about 200,000 tons in the US.

Brian Morgan: Okay, that's great. And then the last question is, with the wood price drop in South Africa, can you just give us an understanding of the magnitude of the price drop? And then, can we expect that to feed through into any of your costs, given that you guys do still buy wood?

Steve Binnie : Yes. Well, the magnitude of the drop, Alex, that's public, right? So, we don't have to -- we can disclose that it's ZAR 125 a ton.

Alex Thiel : That’s right.

Steve Binnie : Yeah, so that's public. And you're right. And by the way, Brian, it's not just on what you buy from third parties. It's even on your own fair value, right? Because you take the fair value note, and then it means that your cost per ton that you apply to the paper and pulp business comes down as well. So, most of that benefit would be felt in the ’25 year.

Brian Morgan: Okay, that's great. Thank you.

Operator: Thank you. Now, we're going to take our next question. And the next question comes from line of Brent Madel from Absa. Your line is open. Please ask your question.

Brent Madel : Thanks very much. Two questions from my side, please. So, you've indicated that cotton prices are lower, but the viscose discounted cotton remains healthy. Do you have a sense of how much cotton prices would have to fall for viscose prices to rise for it to be more favorable for cotton? That's my first question. My second question is the last few quarters post the closure of some of your European graphic paper capacity, you've been operating close to the 90% level. I just wanted to ask whether you could give us a sense as you enter Q4, whether that capacity is still operating at around that 90% level, as it moderates from those highs. Thanks very much.

Steve Binnie : Yeah, yeah. Okay, on the first one, in terms of cotton versus viscose, it's not an exact replica, because clearly they have different functionality. Historically, the two prices were very close. In recent times, cotton has sold at, and Mohammed, you can jump in here, at quite a significant premium. More recently, it's come backwards. There is a correlation, but because it's a different product with a different process, the actual costs, the manufacturing costs are very, very different. So, there's no doubt when the price of one moves, it has a knock-on impact on the other. But Mohammed, I don't know if there's specifically anything that you want to say on the relative movement.

Mohamed Mansoor : Steve, I would just say cotton has just proven to be very, very volatile, whereas viscose has tended to be a lot more predictable. And what we've seen as a result of that predictability, the buyers of the fibre have tended to go with the fibre that is more predictable so that they know what the input costs are.

Steve Binnie : Yeah. Okay. And then on the coated woodfree, look, we're still close to the 90% level. The industry, interestingly, in Europe, is less than that. It's about in the mid-70s somewhere. So, we're above those levels. And obviously, which means that some of our competitors must be struggling.

Brent Madel : If I may ask a follow-up on that, and I think you've given this information before, can you just give us your idea of what the surplus capacity is of graphic paper in Europe at the moment?

Steve Binnie : Good question, because there's so many sewing machines. Whether it's on speciality grades, some machines have put uncoated on together with coated but it’s probably, we estimate the market demand for coated woodfree in Europe at about 2.5 million tons. And it's currently, depending on how you allocate the capacity of the competitor, maybe about 700,000 tons or 800,000 tons excess.

Brent Madel : Okay, thanks very much.

Operator: Thank you. Now we're going to take our next question. The next question comes from Saul Casadio from M&G Plc. Your line is open, please ask your question.

Saul Casadio: Hi, thanks for taking my question. I have a couple more, more like a clarification. The first one is an accounting one, and it regards the impact of the fair value adjustments of your presentation on your EBITDA. You report US$3 million in the P&L, if I understand correctly, but when I look at your cash flow, there is a further quarter of US$31 million negative in the account, suggesting that there's potentially non-cash contribution of US$31 million in the quarter. So I struggle to reconcile the two numbers. If you can explain that, that would be great.

Steve Binnie : Okay, so we're just finding the 31.

Saul Casadio: Yeah, Page 15 of the report.

Glen Pearce: It's the combination of your price fair value adjustments and your volume fair value adjustments. So we put them all together there because they're non-cash items.

Steve Binnie : Yeah, every year your trees grow and you have what we call a volume adjustment. So that's obviously non-cash as well.

Glen Pearce: And we just call out the price of the value adjustment on the income statement.

Saul Casadio: Okay, and does the volume adjustment flow through the EBITDA as well?

Glen Pearce: Yes, that's correct. But bear in mind you have costs that you incur to grow your trees, your operating costs, your silviculture costs.

Saul Casadio: And they're pretty much similar?

Glen Pearce: Correct. So they're more or less set each other off.

Saul Casadio: Okay, okay. Okay. Thanks. And the second question is on your Slide #4. You mentioned you have a target to reduce the paper contribution below 30% by 2027. I miss whether you were referring to the EBITDA or the volumes?

Steve Binnie : Oh, it's on volumes. At Somerset, the machine that we're converting is about, Mike, about 250,000 tons. So that's obviously coming out of the coated woodfree space. And then at the Gratkorn machine in Austria, we're taking about 200,000 tons up. Yeah. Marco?

Marco Eikelenboom: Yeah. On graphics volumes, it's more towards 250,000 tons.

Steve Binnie : Yeah, yeah. So that's on volume. Obviously, the segments that we're moving into are higher margin segments. So you would have not only the volume adjustment, but you would have the improved margin that would contribute towards the packaging and speciality is great.

Saul Casadio: Thank you. Thank you very much.

Operator: Thank you. Now we'll go and take our next question. The next question comes from Lars Kjellberg from Stifel. The line is open. Please ask your question. Lars, please be advised, you have a lot of background noise on your line.

Lars Kjellberg: Okay, I'm not sure what that is. All right, anyway, can you hear me okay?

Steve Binnie : Yes, Lars. You sound far away. I'm not sure you're -- you sound like you're on Mars.

Lars Kjellberg: Okay, let me try. Is this better?

Steve Binnie : Yeah, let's go for it, Lars.

Lars Kjellberg: Okay, anyway, so two things. You know, pulp prices, of course, were extremely elevated. And yet the paper price has barely moved, which suggests of course there's competitive pressures out there. Are you seeing any sort of downward price discussions now on account of fairly rapidly falling, pulp pricing particularly on the hardwood side? That's my first question. The other one relates to packaging. Obviously we can track the price indices, right, for US lease forward, for example, and yes, it's down a bit. Like most other packaging grades, you know, kraft paper, container board, etc., they're tracking higher. So what are you seeing in that market that makes, your packaging exposure seeing some pricing pressure while other big segments appear to be having the opposite?

Steve Binnie : Yeah, I think on the paper prices for graphic, no, we're not seeing significant downward pressure. Bear in mind that obviously, pulp prices in Europe have lagged China. So prices are so relatively high. We haven't -- sorry? Okay, I wasn't sure if you were asking another question there, but no, we're not seeing downward pressure. In the US, and I’ll let Mike go into more detail or elaborate further, but yes, I think we did see some negative price pressure on SBS markets in the US. Not significant, but downward pressure. I think there was -- from a competitive landscape, I think there were some competitors looking to fill their machines. But and maybe that's why the direction of the pricing is different from other categories. Having said that, it's not significant downward pressure and we're feeling good about the market.

Mike Haws : Yeah, I really think, Steve, you summed that up well. We're not seeing significant price pressure, I wouldn't call it. Maybe some minor price pressure last quarter. We're actually feeling good about our Q4, our next quarter.

Steve Binnie : Okay?

Lars Kjellberg: Okay.

Operator: Lars, do you have any further questions?

Lars Kjellberg: I do. Can you hear me? Sorry.

Steve Binnie : That's better.

Lars Kjellberg: I know it's gone. Okay, very good. Now I was just going to say on the speciality side of the business, i.e. pricing direction, that would be helpful? And also a topic that has been quite vibrant on the US side specifically is, the trade publications keeps on talking about a European threat of folding box boards coming in. Well it looks pretty apparent that given the wood cost in the Nordics in particular that that would be quite a challenge. But if you, do have any color you can share on potential import penetration that could have an impact on your volumes in particular post-summer side expansion?

Steve Binnie : Yeah. Yeah, look, your first question I guess is just a follow on from what you previously asked. As we say, there is a little bit of downward pressure but it's not significant. We are feeling good about the market in the US. Volumes are good. Our machines are full. And we are feeling positive ahead of the completion of the Somerset project. On the folding box board coming out of Europe, look, there's already some of that there. We're not seeing unusually high activity. You're right. The operating costs in Europe does create challenges for them to bring in more. But certainly, and again, I'm repeating myself, but generally we are feeling good about the North American market. We're feeling good about signing up customers ahead of the completion of the machine. And we're positive about the outlook.

Lars Kjellberg: Thank you.

Operator: Thank you. [Operator Instructions] Now we're going to take our next question. And the question comes to the line of Brian Morgan from RMB Morgan Stanley, your line is open. Please ask your question.

Brian Morgan : Hi, guys, thanks for the follow-up. Can you, I mean, $30 million of maintenance shuts in the quarter, what can we expect in the fourth quarter?

Steve Binnie : Sorry, it was $30 million?

Brian Morgan : Of maintenance shuts, impact of maintenance shuts.

Steve Binnie : Yeah, we don't have any big ones. Sorry, it's a material. Brian, where are we? Yeah, it's very small.

Brian Morgan : Okay, when would you think the next big quarter of maintenance would come through?

Steve Binnie : Yeah, February we've got in Ngodwana.

Alex Thiel: That's going to be a long one.

Brian Morgan : In Ngodwana. Okay, that's good. Thank you.

Steve Binnie : And then obviously we've got -- And then we've got Cloquet next year.

Brian Morgan : Okay. And just to confirm, is this on 12-month cycles or 18-month cycles?

Steve Binnie : The two American ones are 18 months and Ngodwana with 12. And then Saiccor. Saiccor we don't have one big shut. We've got the three lines and we schedule those at different points in the year, but that's 12 months as well.

Brian Morgan : Okay, cool. And then can I ask on Lanaken and Stockstadt, were you able to carousel all of those volumes always, or some volumes you lost?

Steve Binnie : Yes, most of it we were able to carousel. There was a little bit of uncoating that we didn't but we knew that. And we took that out but yeah on the coated woodfree side went very well and mostly uncoated as well.

Brian Morgan : Cool that's all for me thank you so much.

Operator: Thank you. Now I'm going to take our next question. And the question comes to the line of James Twyman from Prescient. Your line is open, please ask the question.

James Twyman: Yes, thank you for the follow-ups here too. So I had a few questions. The first one was, if you look at the nine months volumes, South African volumes were down so far this year, and pulp volumes overall were also down, and the common denominator would be South African pulp. But that should be growing, I would suggest because of Saiccor ramping up, but it would be good just to check that is the case. The second one was there was a nasty looking fire at Saiccor last month, which fortunately didn't cause any injuries. Did that lead to a few days of downtime? I'd just be keen to know about that. And then the third one is just what the mechanics are of the Somerset startup in terms of the extra downtime that is needed to put this all online and when you think that might be and what that might cost? And that then will be everything for me. Thank you.

Steve Binnie : Yeah. Okay, Mike, will talk about the Somerset or changeover as we complete the project and Alex will just give you a little bit of feedback on the fire. And in terms of the DP volumes --

Alex Thiel: We had a shut out in Ngodwana, which affected the volume.

Steve Binnie : Yeah.

Alex Thiel: Which we didn't have in the previous year. And what has really happened is we had an 18-month cycle. And we've actually pulled it back to 12 months, just because we're not very comfortable with the long duration, we obviously will be focusing on getting it back longer as we’re comfortable with the long term equipment. So it's really a change in the shut timing.

Steve Binnie : Yeah, I'm just thinking, it's a year-to-date question. I think earlier in the year we had some challenges at Ngodwana as well, which took a few tons out. But maybe the bigger answer to your question is that the production at Saiccor is going well and we're really happy with the progress that we're making there, specifically to the fire?

Alex Thiel: James, maybe just to give you some background, it was a liquid oxygen tanker that caught fire and it looked more spectacular than it was. It does, this cost us about five days of downtime. But for me, what is very, very positive is the recovery. You know, we literally got that mill up as quickly as we could get the equipment replaced. And there was a little bit of damage of equipment. And just to remind you, this was a real dead stop in the mill, so it's not, there was a controlled stop. So, for me, what I take out of that is we really are under control of the operation, so, very positive but it cost us some production time.

Steve Binnie : Thanks Alex. Mike on the Somerset.

Mike Haws : Yes. So, the Somerset outage is scheduled for 70 days of downtime on PM2. We go down the end of January and we'll start up in April. The start up of the equipment is, the equipment is almost identical to what we installed on our number one paper machine. So this isn't a brand new equipment that we've never run before. We have a ramp rate that is planned over the course of the next six months. The most aggressive performance starts in that first month. So we'll ramp up substantially and we should be at reasonable uptime levels within three months and then we'll progressively get better through the course of the next nine, is the way we planned it.

Steve Binnie : And obviously, ahead of that, we will be building inventory levels.

Mike Haws : So, yeah. So, it's about 50,000 tons, 52,000 tons of what would have been graphics orders. But remember, this machine is going to start up and be 100% packaging at essentially when back to full rate, double that production.

Steve Binnie : That make sense?

James Twyman: Yeah, Okay, so it's like an additional maintenance hit you're going to take some time at this?

Mike Haws : That's a good way to think about it. But obviously, this is going to be a machine expansion that in those 70 days, we will be retooling the entire asset to make a much different grade at a higher production rate.

Steve Binnie : So net-net, it's positive because of the higher volume post the completion of the project. Does that makes sense?

James Twyman: Absolutely, very much so. If I could just do one more little one, which is, Lars was asking about coated fine paper prices. With the rise in pulp prices, you wouldn't want to get prices up, which means that the markets are quite weak, which maybe means there's a bit of pressure. But in terms of the speciality market, that's probably a bit different. You haven’t managed to get any pricing there really either, it looks like. But presumably can we feel a bit more confident there that you can you should be able to hold prices when your costs come down there?

Steve Binnie : Yeah what's made it tricky, right, is that the market has been weak. So it's very difficult to get price increases in Europe when market conditions have been in that in that state. Things are improving and so our ability to hold prices will improve. Obviously, if you look historically, normally when the pulp cycle turns, that's when there's an opportunity to capitalize on the margin benefit. So it's going to be a strong focus of our attention to keep our prices high for as long as possible.

Operator: Thank you.

James Twyman: Thank you very much.

Operator: [Operator Instructions] Dear speakers, there are no further questions. I would now like to hand the conference over to your speaker, Steve Binnie, for any closing remarks.

Steve Binnie : And now just to thank everybody for joining us again today and we look forward to discussing our year-end numbers in three months' time. Thank you very much.

Operator: This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.