Earnings Transcript for SPPJY - Q4 Fiscal Year 2020

Steve Binnie: Thank you. Good day, everybody. Thanks for joining us for our results call this year ended 2020 and obviously, with a focus on the fourth quarter results. I'll call out the slide numbers as I move through the presentation deck. And starting on Page 3, which is some of the highlights for the year as a whole. And clearly, obviously, the story is around COVID, had a significant impact on our business and our profitability. The year was a tale of two halves. The first part of the year, we started reasonably okay. And obviously, we did have lower dissolving pulp prices, but generally, the business was doing satisfactory, and we were expecting a recovery in dissolving pulp prices in the second half of the year. And in fact, the momentum was there for that as we go to January, February. But obviously, we experienced COVID from February onwards and which had a huge impact on Sappi's business, specifically in our two largest segments, the dissolving pulp and graphic paper. And as a consequence of that substantial declines in sales volumes, we were forced to take production downtime. I think we took 1.1 million tons of production downtime. The low point seems to have been around May, June. Subsequent to that, we have seen an improvement, dissolving pulp, especially. The markets have improved. We've seen pricing pick up. And that's associated with – post the lockdowns. We've seen stores, retail clothing stores, open across the world. And we – and that's progressively got better. And at the same time, I think when the lockdown was – the lockdowns were at their peak, inventory levels across the various supply chains ran down quite hard. And on the subsequent rebound, we've seen various players seeking to fill up their inventory levels. So it's been a faster recovery than we feared and is ongoing. And I'll talk a little bit more about that. The graphic paper similarly was under significant pressure from a low point in May, but we've seen progressive improvements month-by-month from there. Packaging held up well, and that segment continued to grow and in terms of volumes and profitability on top of that. Naturally, our attention turned towards preservation of liquidity. A number of actions were taken with regards to CapEx, working capital costs, efficiencies and that helped soften some of the impact. I'm pleased to say with all the good work, and despite the challenges that we faced, our liquidity at the year-end was still good. We had cash on hand of about $270 million and unutilized facilities of about $580 [ph] million. Obviously, the lower profitability meant that the EBITDA was down year-on-year – sorry, the EBITDA of $378 million was down 45% year-on-year. If you backed out the 1.1 million tons of curtailment that we took, that accounted for about $300 million. So we would have been back up to normalized levels if we hadn't had to take that curtailment. Page 4 has our – the quarter specifically. And I'm pleased to say that we have seen progressive improvement from $28 million EBITDA in Q3, which obviously, was under significant pressure. We got to $82 million in the current quarter, clearly not where we want it to be, but good progress. In the segments, packaging continued to do well. Graphic paper, down about 32% in terms of volumes but each month progressively better, and we'll cover that in more detail. And dissolving pulp volumes down 29%, but the market much better than that. We closed – temporarily closed our calcium line at Saiccor, which obviously took volumes away from us. And at the same time, switch some of our capacity towards paper pulp because that made economic sense. So the market actually was much better than this, and we'll talk more about that. South Africa, internal domestic markets struggled, newsprint and uncoated paper, and that's on the back of the weaker domestic economy. But our packaging business, which is predominantly exported out of South Africa did fine and did well at the end of the year, so progressive improvement. Slide 5 is the earnings bridge from last year to this year and it's – the story is obviously, once again, all about COVID, which impacted volumes. It did have some impact on pricing. And the lower DP prices that we began the year with as well, obviously, had a negative impact. Slide 6 has the contribution split. And the two segments – our two largest segments, dissolving pulp and graphics, obviously from an EBITDA perspective, well down on a year ago. Packaging did well. Normally, it's about 1/4 of the business contribution in terms of profits, it was about half of the year, which if you think about where it was five or six years ago, close to zero, it's a very good performance to get it to these levels. But ultimately, as graphics and dissolving pulp normalize, we would expect the packaging on a relative basis to be back to around 30% as we go forward. On the volume side, you can see the split in the contribution. Over the years, there has been a reduced exposure to graphics. And I would expect that to continue in the years ahead. Slide 7 has the segmental volumes in EBITDA. And it just reinforces the story that we've talked about. Firstly, graphics on the top left, volumes coming way off. Margins similarly with a rebound in the current quarter. The packaging volumes continue to rise. And I'm pleased to say that margins continue to be good. The bottom one, once again, dissolving pulp impacted by the well, one, lower pricing. And obviously, the COVID impact and the lower volumes that came through. This is a segmental one as well. So it includes BCTMP. So that does distort the numbers slightly. Slide 8 has our net debt and our leverage. And obviously – well, firstly, on absolute debt numbers, they did rise during the year. We did acquire Matane at the beginning of the year. And the other big adjustment was this IFRS adjustment where you bring in operating leases. So that was added to the numbers. Exchange rates also had an impact. But I think more importantly, we obviously have to look at the leverage. And because of lower profitability, it does have a substantial short-term impact on the leverage ratio. We've obviously negotiated a covenant suspension extension. But in the short term, the leverage ratio will be impacted. We estimate that the COVID will have an impact over four quarters. We've obviously gone through two. And things are progressively getting better, and we would expect that to continue in Q1 and Q2 of the new financial year. But then, once we get beyond that and earnings get more back to normalized levels, the leverage ratio will come down quite rapidly thereafter. Slide 9 has our maturity profile of our debt. And just to call out a few factors. Firstly, we did have substantial cash on hand, which I mentioned earlier, that's the light blue bar on the – in 2021. We had some drawings under our RCF, the $116 million, but we still have substantial unutilized facilities, which I referred to earlier. The RCF, we would expect to negotiate a new RCF, both with new covenants some time during 2021. And then beyond that, we have a securitization structure, which we are confident that we will extend. And then you're looking out to 2023 and beyond. So – although there has been short-term pressure, the liquidity remains good and we are confident that we will continue to manage our debt in a proactive basis. Slide 10 has our CapEx. And next year – well, this year, it was about – I think it was out $350 million, $360 million. And next year will be a similar level. Included in the next year number is about $100 million related to our Saiccor expansion project. If you recall, earlier in this – in the 2020 year, we thought we were going to have higher CapEx. We obviously pulled back and we rolled that – a significant proportion of that $100 million from 2020 into 2021. Then turning to the segments, and I'll start on Europe on Page 12. And clearly, COVID continued to have a significant impact on our industry. Coated woodfree, coated mechanical 30% and 28% respectively. Sappi, specifically, if you recall, we did convert the Lanaken line a couple of years back. So we reduced our exposure on the coated mechanical side. All our coated mechanical now is at the – Kirkniemi mill. Because of the lower volumes, we took production curtailment of 285, which had about a $78 million impact on profitability. The curtailment was less than the prior quarter and will – as we continue to improve, we would expect that, that curtailment to continue to reduce. On the packaging front, paperboard did well, and we saw increases. But some other nonessential-related packaging was negatively impacted by COVID. A lot of great work done on the cost side, both on variable costs and fixed costs. Turning to North America. And excellent progress on the packaging at Somerset that we've been ramping up, and it's been very successful for us. The graphic paper, volumes declined slightly less than Europe. We have seen – we have seen a faster recovery in the U.S., although what I should have said when we were talking about Europe, there were certain countries in Europe, like Germany, that have done equally well. But other markets like the UK have been slower. In the U.S., we have seen volumes getting back up to about 80% of last year. And I do have another slide on that a little bit later. So it is improving progressively from the lows of the 50% that we saw in June. We did take downtime of 36,000 tons, but that's substantially less than we had seen in the prior quarter. So it's good progress that we're making in the U.S., and we continue to progressively see improvements each month. The lower dissolving pulp demand and selling prices did have an impact because we – as you know, we make it at the Cloquet Mill. Once again, a lot of great work done on costs. In South Africa, turn to Page 14, the – it has big exposure to dissolving pulp. So the COVID impact on volumes, the softer DP prices had a substantial impact on profitability in South Africa. And at the same time, as I mentioned earlier, domestic paper markets were under pressure. However, packaging continues to do well, it's predominantly exposed to fruit exports out of South Africa, and we are pleased with the progress there. And once again, like all the other regions, great work done on costs. Turning to Page 15. As I mentioned earlier, a lot of focus on costs and the balance sheet. We had to be proactive. We had to take things into our own hands. We couldn't wait and be reactive, so a strong focus on cash generation. So despite the lower profitability and the pressure that, that brought, we were able to contain the impact on liquidity and on the balance sheet. As you know, we extended the covenant suspension period up until September 2021. And the first measurement beyond that, with the covenants, will be December 2021. We – a lot of good work done on working capital. We reduced it by, I think, by $135 million. On this call three months ago, I think we committed to reducing it by $90 million and pleased to say that we did better than that. CapEx was pulled back. And on an ongoing basis, we've been doing lots of good work on procurement. And in 2020, we took out another $108 million. And at the same time, fixed cost savings of $37 million. Turning to the markets, and moving to Slide 16. Firstly, graphic paper. And I've talked about this already. We have seen progressive improvements from the kind of 50% that we saw in June all the way up to in Europe. But by the end of the quarter, Europe was in the 70s on a blended basis, U.S. in the low 80s, so progressive improvement. In Europe, impacted by export markets. As you know, we sell to Asia and South America and Latin America has been particularly hard hit by the COVID. So the relative performance in that – in those markets has been weaker. The – in South Africa, I talked about newsprint and office being under pressure. So at the same time, because of the weaker markets, prices did drift downwards. On the positive side, there has been substantial capacity coming out of the market, both in North America and in Europe, both on coated woodfree and on coated mechanical. So on coated woodfree in Europe, for example, between 15% and 20% has either come out or is planned to come out. And in the U.S. with recent announcements, it's approximately 25%. So we are encouraged by that, and it should help bring the markets back into balance. And when I talked earlier about 70%, 80% of last year if the markets can get back to 85%, then the market is back in balance once again. Packaging was an excellent year, and paperboard side ramped up nicely. Food and hygiene-related products doing well. But other nonessential goods did come under pressure, and costs helped support margins there as well. Dissolving pulp, the industry really has recovered faster than anybody had expected. Global retail sales rebounding. And we do have a slide on that in the next one. Spot prices in China for dissolving pulp have improved on – not just dissolving pulp. Viscose prices have jumped substantially as have cotton and polyester prices. So we are encouraged by all of those factors. Spot prices moved from about $608 a ton in the middle of the year. And as of today, they are $680 a ton, and hopefully will continue to rise. The – Sappi's volumes were constrained. Because of the force majeure that was declared by our customers and the weaker markets, we did make a decision to halt production on our calcium line at Saiccor, and that obviously impacted on volumes. But we are – subsequent to that, we are looking at opportunities to increasing volumes once again. We've got the expansion project, which we expect to complete in Q3 of 2021. And once that's all done and ramped up, then we will be back to full volumes at Saiccor of – well, post the expansion, that will be $890,000 – 890,000 tons. Same time on BCTMP, good work done on production and on sales to sell all the tons, but we – like all pulp markets that was under pressure, so pricing was low. Slide 18, just – there's numerous publicly available data out there. We just selected one or two just to support the recovery in the business. The one on the left is closing retail sales in the U.S., and you can see how it's ramped up since the lowest that we experienced in April, May time. And at the moment, if you look across different markets, clothing sales are somewhere around the 85% mark, and this is consistent with what's reflected. And that's what we are seeing in dissolving pulp markets and all textile markets. On the right-hand side is coated woodfree volumes in Europe and in the U.S., market volumes. And you can see there has been a steady recovery, not as sharp as dissolving pulp, but steady and ongoing. And we continue to see that in October and hopefully, as we move forward. The big challenge, obviously in Europe, is this – the second wave and the lockdowns associated with that. Turning to our strategy. And on Page 19, I'm not going to read this to you. This is our business strategy statement. We've rolled out our new 2025 strategy. And we're still very excited about the long-term prospects. Two, kind of, big changes. As we think about our strategy for 2025 compared to the 2020 strategy, is there's going to be an increased focus on sustainability, particularly from a customer side. And that represents significant opportunities for us, the shift from plastics to paper and certified fiber gives us a strong position. And that's something that we will continue to develop. Similarly, on innovation, as we grow our packaging business, that's going to be an area where we, in time, we will continue to develop and invest, obviously in the short term, focused on the balance sheet. So turning to Page 20, our 2025 strategy. It has four key fundamentals, and those are reflected on Page 21. I'm not going to read this to you. But just briefly, talking about each. Ultimately, we want to grow our business. And we think there are exciting opportunities in packaging and specialities, bio-related products and dissolving pulp continues to grow. But in the short term, we are not going to – our focus is obviously on the balance sheet. And that's the second pillar. It's about sustaining our financial health. It's about reducing debt, focus on costs, efficiencies, processes and the like, and – which leads us into operational excellence. Obviously, an ongoing focus on safety at the same time as the efficiencies and our systems to support us to do that. And systems to support us to do that. And ultimately, recognizing our commitments to the community, our staff, the environment in which we operate. That's the last pillar, enhancing of trust. Slide 22. Within that strategy, it comes in two distinct phases. And in the short term, a strong focus on debt reduction and efficiencies, improving of margins. We will continue to do exploratory work on longer-term opportunities, but we're not going to be committing to anything like that until our balance sheet is back to where we want it to be. And that leads you in to Slide 23. Beyond that, we do think that we – our balance sheet will be, once again, back at the levels we need it to be. And hopefully, then we will be in a position to commercialize some of the new products and build on our sustainability strategy and our packaging business. But I keep emphasizing, that's not something that we're going to do shorter term. Slide 24 has the – some of the short-term initiatives that we're doing under those four pillars. On operational excellence, we have talked about the fact that we had procurement savings. And in the year ahead, we think there are further opportunities in the order of $70 million, and we're committing to that one. The Saiccor expansion will also contribute to improvements as well once that project is completed. On the enhancement of trust, you'll enhancement of trust, you'll have seen publicly, we've made a commitment to science-based targets. Over the next few years, we recognize that we need to be aware of our environment and the climate change. And we will commit to those through the targets that we set ourselves. Our customers are increasing the pressure there. And it's important that we have visibility throughout our supply chains. On the sustaining of financial health, talked about the covenant suspension and strong focus on cash generation in the year ahead. On growing our business in the short term, we're not going to commit to significant capital, but we do have scope for further ramp-ups following the conversions we made a couple of years back at Somerset and Maastricht. And the barrier technology that we acquired a couple of years back from our Rockwell, there are significant opportunities longer term and in the shorter term. So we will continue to ramp up there and obviously completing the Saiccor expansion. Moving to Slide 26. It's our outlook statement for the year. So you can hear from what I've been describing, we expect the underlying performance of the business to continue to improve in the first quarter. Packaging and specialities continues to be robust. However, we do have two big shuts in Q1 when you're comparing Q4 relative to Q1. The Somerset is an annual shut as well, as is in Ngodwana. But you'll recall, we did defer the Ngodwana shut to minimize the cost impact earlier in the previous financial year. The combined impact of those two shuts is about $30 million. Dissolving pulp markets have improved. And I've talked about that. Some of the pricing benefit that I've referred to will be felt in this quarter. But much of it will be in Q2 as there is somewhat of a lag impact on some of our contractual business. The graphic paper continues to improve progressively. But clearly, there is risks associated with the second wave in Europe and the lockdowns that we're seeing in places like the UK, Germany and France. So that does carry some risk. The liquidity headroom remains good. I've highlighted that for you. And ultimately, the first quarter will be slightly below what you've seen in Q4, the $82 million that you saw in Q4. But if you add back the $30 million related to the shuts, on a quarter-on-quarter basis, there is continued improvement. So operator, that's me finishing the presentation. I'm going to hand it back to you now for questions.

Operator: Thank you. [Operator Instructions] The first question comes from James Twyman from Prescient Securities. Please go ahead.

James Twyman: Thank you very much. Can you hear me first of all?

Steve Binnie: Yes.

Mike Haws: Yes.

James Twyman: Great, thank you. Yes, I've got two questions. The first one is on the downtime that you're taking at the Saiccor mill, the calcium line, can you just talk around what the possibilities are of that coming back online over the next six to nine months in terms of some of it or all of it, or whether we have to wait for the upgrade in the second half of next year for that very important volume to come back? And then secondly, just wondering if you could just update us on the size of the packaging businesses, in Europe and the U.S. now in terms of how important they are, of how important they are, maybe for last year and this year in terms of the growth that we're seeing from that. Because I think it's important to understand how important those businesses are becoming. Thank you.

Steve Binnie: Yes. On the first question, we are looking at ways to boost our volumes. The calcium line, we are looking to increase and start up. And in fact, we have been able to start that up and get some volumes. It's a progressive process. And what I would call out to you is that in the second quarter of the financial year, there is a shut at cycle, which will impact volumes. So I do think there will be some recovery but because of the shut, you're not going to get the full volumes. On a run rate basis, if you look at normalized levels for Saiccor for the – on an annual basis, pre-COVID, the mill was making 760, 770. And as a result of everything that we're doing, we're probably losing about 70,000 tons for the year. That's our projections. And then obviously, once on a run rate basis. But once [indiscernible] is completed, we'll be up to 890 on an annual basis. So in the first half of the year, you can see the impact from the numbers I've described Then on the second question, I'm not quite sure how – what you were referring to. Maybe what I'll do, Mike and Berry, I'm going to allow you – I'll pass to you just to talk about the growth potential in each of your businesses. Obviously, in the U.S., we have increased our packaging business substantially over the past year. And in the year ahead, we will increase further. And by the time we get to the end of next financial year, we're pretty confident that the Somerset PM1 will be at full volumes on the package side. But Mike, I'll hand to you just to talk about the prospects. And then Berry, I'll come to you on Europe. So Mike.

Steve Binnie: In North America, the strategy has been to grow packaging with the conversion on PM1 in addition to what we refer to as legacy packaging grades. If you go back maybe a year ago, at the beginning in number one, it accounted for probably 15% of North America's volume. That will be upwards of 30% to 35% in the near future and grow from there. I think the outlook is very good. The quality has been excellent on number one, and it's been well received in the market.

Mike Haws: Yes, Steve. Well, the European specialty packaging business is around about 0.5 million tons at the moment and has been growing over the last few years by about 13% per year. It's got plenty of capacity to continue to grow. And so we expect this year to grow again by a similar sort of percentage, perhaps slightly less because there are some parts of it that are affected by COVID. But in terms of our ability to release capacity to let it grow, we have plenty.

Steve Binnie: Okay, James?

James Twyman: Thanks. Just also, your competitors announced a price increase in the U.S., and I think you've announced the next five, six to seven years. Should we be encouraged by that there are some signs of maybe some price recovery in the next three to six months?

Steve Binnie: Yes, I assume you're referring to graphic paper, James, in North America. Yes, there has been announcements. And we are encouraged by the tightening in the market with our competitors taking out substantial capacity. So the market balance is certainly looking much more favorable. Mike, anything you want to add to that?

Mike Haws: No Steve I think that’s accurate. And consider those conditions going forward with pricing in North America.

James Twyman: Thank you guys.

Operator: Thank you. The next question comes from Brian Morgan from RMB Morgan Stanley. Please go ahead Brian.

Brian Morgan: Hi guys. Thanks very much. Can I just follow-on to the specialty packaging question there? On your slide pack, I'm just going to get the slide here quickly. It's quite a big ramp-up in 2021, where you get to volumes over 1.4 million tons, over 200,000 tons of additional growth that you're looking for in 2021. Could you just give us an idea of where that's coming from? I was under the impression that was predominantly from Europe. But the way Berry's speaking, made me to rethink that because if we're looking for 10% to 13% growth, that's maybe 50,000 tons. So what’s the balance? And then related to that, can you talk about 500,000 tons of specialties in Europe? I was under the impression that post the conversions, there should be about 700,000 tons of capacity. So what's the to get up to full run rate there, Berry, if there, Berry, if I can ask that? And then if I can just ask on how we can expect Matane's internal ratio to rise over time. And really where I'm getting to, sorry it's a long question, where I'm getting to is just try to – I'm trying to get a sense of how I should be modeling specialties ramping up on a successive quarterly basis over the next 12 months.

Steve Binnie: Yes. Your first question about where did it come from, it was predominantly in the U.S. And Mike referred to it earlier, our Somerset PM1 machine that we that we converted a couple of years ago. And there's still that – that machine is not full yet. But by the end of 2021, it should be predominantly full on the packaging grade. So there's further scope for improvement there. And then in Europe, you're right. I think to get your number, you're probably assuming the full volumes at Maastricht is on packaging grades. We still continue to make heavyweight graphic paper there. We do have the option to ramp up further ramp up further. So we do have the flexibility to do that that. And so the numbers that Berry described are what we expect the growth to be in the short term. But ultimately, longer term, we could get up to the numbers that you referred to. Berry, I don't know if there's anything more that you want to say there. Clearly, we could add another couple of hundred thousand tons, but it's not going to happen overnight.

Berry Wiersum: That's correct, Steve. You can get to [indiscernible], and it is through Maastricht. But you have to build those markets slowly. There's a lot of qualification you have to do. The markets – the customers have not been open for qualification over the last six months, and that has held us back because of the COVID virus. As that starts to fade and customers open their premises up again, we can see that growing. In fact, after the first wave, we suddenly saw customers opening up again. And then we did see the growth was in exactly that paper. So Maastricht was growing quite quickly during that period.

Steve Binnie: So Brian, in summary, a higher proportion of the increased volumes even in 2021 will come from the U.S. as we complete the final ramp up at – on Somerset PM1. But there is increased volumes in Europe, as has been described. The Matane, obviously, we continue to ramp up further our internal usage. And that matches the kind of growth that we've talked about. As Somerset ramps up further, as Europe ramps up further, we will be using more of those volumes. Broadly at this stage, we still sell significant volumes into externally. And as we ramp up on those volumes that we've described, we'll have less external sales.

Brian Morgan: Okay, that’s very helpful. Thank you. If I can just follow-up, how should we be thinking about the sort of successive quarterly ramp-up in specialties over the next year? Is it going to be a step change? Or is it kind of gradual over the course of the next 12 months?

Steve Binnie: Yes, it’s gradual. Each quarter, as you ramp up, each quarter gets better.

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

Operator: Thank you. The next question comes from Ross Krige from JPMorgan. Please go ahead Ross.

Ross Krige : Thanks for the call. Just wondering in the – with regard to the DWP market, if you could maybe give us a sense of where inventories are now across the value chain, with regard to how much of this improved demand do you think is restocking, where the inventories sit now? And is it in-product demand that's driving better demand? Any thoughts on that would be helpful.

Berry Wiersum: Yes, look, it's a good question. And I think there's relatively good news. The inventory levels particularly on the viscose side and through the supply chain are – have come down substantially. And so despite the acceleration in volumes you've seen or higher dissolving pulp volumes being sold, still, on a relative basis, volumes have – inventory levels have come down substantially. Mohamed, do you want to say more on that?

Mohamed Mansoor: Steve, I would just add that the one component of the value chain that does have public information when it comes to inventory levels is the viscose staple fiber industry in China. And according to the CCF data, inventory levels for viscose, which was about, say 35, 40 days a few months ago, has now dropped to 12 days, which is a significant reduction in terms of days of supply, and the long-term average is about 17 days. So a very significant reduction.

Ross Krige: Thanks guys. That's great. If I can just follow-up with one question on the supply side. Are you seeing – previous capacity that was previously curtailed ramping up now, how is your supply responding?

Steve Binnie: Yes. What you've seen, and we estimate about 1.4 million tons during the year had come out of the market, some of it temporarily and some of it permanently. With dissolving pulp prices being as low as they were, many, many producers – in fact we estimate about 50% of producers were making cash losses. So this is another positive factor. The marginal breakeven point, the intersection between supply and demand is about $760 a ton. And that's why we've always been confident that on a selling price basis, that's the minimum level prices should recover to. Now with regards to subsequent reopening, many of them, even at a dissolving pulp price of $680, most of those producers that I referred to are still making cash losses. So we haven't seen substantial new or capacity come back as of yet. Mohamed, you're closer to it. Any specific comments you want to make there?

Mohamed Mansoor: Steve you've covered most of it. Just to reconfirm, a significant demand of the capacity came out of China, where many of the DP producers switched to other grades like bleak paper pulp, hardwood, softwood as well as unbleached kraft. We haven't seen anything from our market intel to suggest that capacity has restarted. Clearly, as the prices move upwards and the differentials adjust, there is that possibility. But the other point I should add is that most of the dissolving pulp production in China relies on imported woodchips. So there is also going to be some time lag to get the chips into China and then restart making dissolving pulp if they want it to.

Ross Krige: Great, thanks so much guys.

Operator: Thank you. The next question comes from Mikael Doepel from UBS. Please go ahead Mikael.

Mikael Doepel: Thank you. Just a couple of questions. So continuing on the DVP market, I'm just looking at the VSF prices here, it seems that they are up by about 28% since mid-August, and then DVP pricing is about 12%. So would you say that there is still some catch-up to do the DVP price vis-a-vis viscose pricing? And what's your expectations for the next few months there, please?

Steve Binnie: We certainly hope so, and we quote those numbers to our customers. So we agree with you. So yes, we are – in the short term, based on everything we're describing to you, we are optimistic because you're right there. And incidentally, it's not just viscose prices that have rebounded stronger than dissolving pulp. Cotton and polyester prices have as well. And the other encouraging aspect that we haven't talked about is that paper pulp prices have also started to move up a little bit. So there are a number of factors that are causing us to be optimistic about the direction of pricing.

Mikael Doepel: Okay. That's clear. Thank you. And then just a question on the cost outlook for next year. I guess for many companies in the industry, the cost has been the one thing that has the price positivity in the quarter, costs coming down a bit more than assumed and having a bit of a deflationary environment. What's your thinking going into next year? I mean do you expect to see a deflationary/inflationary environment? And what can you do yourself in terms of taking out costs? And also related to that, actually, the maintenance cost, you had some deferrals now from 2020 to 2021. So just wondering what the P&L impact will be of maintenance costs to 2021 compared to 2020.

Steve Binnie: Okay, I’ll talk about costs generally. On – the big shut that we moved was in Ngodwana. And Alex, I'll come to you on the cost of that shut obviously, there's CapEx costs and maintenance costs associated with that move. On the cost broadly, well, I've already said that we've committed on the procurement side. We're setting ourselves a target of $70 million. On other costs, we are looking to take substantial costs out of each of the regions. And we have various projects underway. It's a bit early to commit to a number. But in each of the regions, we've created project teams. We've set ourselves targets. And we're confident that we can get further savings. The other thing that will obviously benefit us is as we get back to normalized production levels, your efficiencies at the mills get better. The fixed costs get absorbed across higher volumes. So your average costs go down. So we do think there are opportunities. Look, some of the savings that we had this year will not be repeated because you had furlough benefits, and certain administrative SG&A-type costs did not occur during the lockdown periods, which when business gets back to normal, some of that will come back. But broadly speaking, we do think that costs will continue to come down. Alex, just on that big in Ngodwana shut move?

Alexander van Coller Thiel: Yes. What we're looking at is we see a good opportunity to actually extend the shut from the current 12-month frequency to shut it out to 15 months. And that obviously will give us a savings opportunity. And I do think it's important to then mention, with all the money we're spending at Saiccor, we are going to get a substantial reduction in variable and in energy cost. And that, also because most of the equipment is being renewed, will also reduce our maintenance book.

Mikael Doepel: Okay, good. Thanks very much.

Operator: Thank you. The next question comes from Wade Napier from Avior Capital Markets. Please go ahead Wade.

Wade Napier: Hi guys. Just a couple of questions for me, please. Have you started seeing the benefits of Stora Enso's more closure in Europe yet? Or was that still to sort of come over the next sort of couple of months, and there's a lot out of inventory? That's my first question. And my second one is on the dissolving wood pulp and particularly at Cloquet. So you sort of still mentioned that you're still incentivized to produce pulp for internal paper consumption. Could you sort of give us a sort of indication of where you would – what sort of price range or what sort of demand recovery you would need before you start thinking about swinging Cloquet back? Or is this a case of as you ramp up the expansion of Saiccor, we shouldn't expect Cloquet to be swinging back to large portions of DWP production in the next sort of 12 months or so? Thanks very much.

Steve Binnie: Yes, thanks. The benefits of Stora, we have increased market share, but we do think that there is scope for further opportunities in the year ahead. As you said, they've only recently closed that line and the – they still have inventory levels or inventory there that they're selling. But ultimately, we do think it represents a substantial opportunity. I'll let Berry talk about it a little bit more. But broadly, it's not just Stora. There are other competitors that are coming out of respective markets. In the U.S., our two largest competitors have announced capacity closures, and that will create big opportunities. And then back to Europe, on the coated mechanical side, again, for the capacity coming out. And I think I said it earlier, but in Europe, you're looking at between 15% and 20% of the market coming out for both coated woodfree and coated mechanical. In the U.S., you are looking on the coated freesheet side, coated woodfree, you're looking at about 25% of the market coming out. So the market balance gives us reason to be optimistic if we can continue to see the recovery in the market that we have been experiencing. Berry, anything you want to add on that European side?

Berry Wiersum: Just very briefly, part of it started to occur early on in the year when customers wanted to secure positions with new suppliers. During the COVID time that stopped. It's now restarting again. So we see as we get towards the end of the year, customers are beginning to come to us and [indiscernible] and looking for supply position. So I would say that a very good proportion is still available. And of course, as far as the mechanical coating shuts are concerned that Steve was referring to, all of that is going to be coming next year. So none of that has happened yet.

Mohamed Mansoor: On your second question on the DP at Cloquet. Look, we still make dissolving pulp at Cloquet. It's not that we're fully off of dissolving pulp. As you know, we look at the differential in pricing between hardwood paper pulp and dissolving pulp. And this is something that we've talked about in the past. About $250 is the breakeven between the two. At the moment, depending on different markets, hardwood pulp, relative to the current spot pricing and dissolving pulp, it's still – it's in the low 200s, the differential. So it's still – even with the increase in dissolving pulp prices, it still favors paper pulp, but paper pulp prices are going up a little bit as well. So it's something we monitor. The thing I should stress to you is you can't flip in and out on a – on a weekly or a month – even a monthly basis because you have to plan your procurement. On the dissolving pulp sales side, you have commitments on a longer-term basis. So it's not as easy as moving in and out one month to next. You have to plan months and months, months in advance.

Wade Napier: Yes, thanks Steve.

Operator: Thank you. The next question comes from Tom Elliott from Royal London Asset Management. Please go ahead Tom.

Tom Elliott: Good afternoon. Can you hear me okay?

Berry Wiersum: Yes.

Tom Elliott: Fantastic. Three questions from me. I just wanted to ask, one, the liquidity position was helped by working cap inflow in this quarter, which I understand to be seasonal. And it looks like it will reverse in the next quarter. So I was wondering if you could give us any sense of what you expect the working cap unwind could be in the first quarter of the year. It's kind of seasonal with you guys, how much you feel you might draw down on your RCF, if you have to do so. And what's the kind of minimum cash you look to keep on the balance sheet, just to kind of frame that question.

Steve Binnie: Okay. I'll let Glen handle that. Glen, the working capital and what it means for our RCF in the kind of short term?

Glen Pearce: Right, so Tom yes you are correct. We do have an outflow, a seasonally adjusted outflow in our first fiscal quarter. It will be in the range of about $13 million. So it won't be more than that. And we'll use existing facilities that we do have. We have more than sufficient liquidity to be able to handle that.

Tom Elliott: Okay. Great. Do you target minimum cash, some minimum level of cash?

Glen Pearce: We prefer to – you see, we've got $279 million on the balance sheet at the moment. It's preferably between $100 million and – $100 million and $200 million that we prefer to keep.

Tom Elliott: Okay, that’s great. And then just a quick follow-up on that. Is any of the RCF restricted for letters of credit? Or how much of your cash is restricted as well, just to round that off?

Glen Pearce: We don't disclose that number.

Tom Elliott: Okay.

Glen Pearce: There is a limit there.

Tom Elliott: Okay. No problem. My next question is just going back to, I think it was the second quarter of this year. I apologize if that was wrong. Just regarding the pulled bond deal. Are there any further thoughts amongst the management team of coming back to the market to try that again? Or do you feel like the liquidity is okay where it is now?

Steve Binnie: Obviously we were trying – we went into the market early in the COVID period. And we were being opportunistic, and there was a lot of uncertainty. We'll continue to monitor the markets and see how things unfold. But to the second part of your question, we are confident in our liquidity, so there's no immediate rush to do that. We can be flexible, and we'll monitor the bond markets.

Operator: Thank you. Steve, I'd like to hand back to you for closing comments.

Steve Binnie: Thank you, operator. Yes, thanks, everybody, for joining us, and we look forward to discussing the results at the end of the first quarter. Thank you very much.