Earnings Transcript for SPPJY - Q4 Fiscal Year 2023

Stephen Binnie: Good day to everybody. Thanks for joining on the call. As always, I will run through the investor deck making a few comments and highlights, and then we will open it up for questions. And I'm going to start on Page 3, which is a summary for the full financial year 2023. All in all, I think it's been a satisfactory year. As you know, we faced a number of macroeconomic challenges and we also faced the impact of destocking throughout the year. Having said that, there was a number of milestones. As I said, we delivered $731million of EBITDA, which is satisfactory. The South African business actually delivered a record EBITDA, so we are proud of that and the North American business was the second highest ever. Unfortunately, we did face challenges. The paper markets were weak related to the reasons that I mentioned earlier and in particular that had an impact on our European business, which is the most exposed to those weak paper markets and in particular graphic paper. The pulp segment's profitability was impacted by lower average pricing and cost inflation on top of that. Having said that, net debt was - we're particularly proud that net debt is now the lowest level in 30 years due to the strong cash generation. So in spite of the fact that our profits were less, we were still able to generate strong cash flows and on the back of that, we were able to declare a dividend of $0.15 per share. Turning to Page 4, which is the quarter highlights, the EBITDA came in at $168 million, which was obviously better than the prior quarter and in fact ahead of our own expectations. We definitely picked up more momentum as the quarter was completed. But it is important to stress that we still have challenging trading conditions and you'll see from our outlook statement later that is still continuing into Q1. We did see a recovery in volumes from our graphic paper segment, and I mentioned this previously on the last call. It's not a V-shaped recovery, it's a gradual recovery, but we did benefit during the quarter from higher volumes. It was record pulp sales volumes. Obviously we've seen stability at the Saiccor Mill and we benefited from that during the quarter. And then in the packaging segment, once again the volumes were better, not a V-shaped recovery again, but better. However, that's a segment that we're still seeing the impact of high inventory levels. I think it's played itself out in graphic and we're back to the macro factors affecting demand, whereas in packaging we're still seeing a little bit of high inventory levels downstream. And obviously in that segment, the unfavorable economic climate and its impact on consumer demand. Slide 5 has our product contribution split. Obviously, we've had volatile times in the last couple of years, but I think the overall trend is that it is playing out. And that's the importance of our strategic shift away from graphics towards the higher margin, the higher growth segments of pulp and packaging. And you see that on the right hand side. Slide 6 has our earnings bridge. Normally we do it year on year, but this time we thought it would be useful to do it quarter on quarter because I think it tells a clearer story in terms of the underlying trends. Firstly, higher volumes coming through and that was across the segments, something that we talked about in prior quarters, selling prices did come off and that you would expect from the highs that we experienced earlier in the year you see, had a negative impact on graphics and packaging. The pulp prices a little bit down in the quarter, but I'll talk later. We obviously have seen that turning positive in recent weeks. The costs from a significant high - we did benefit from lower costs coming through and it's probably fair to say that we're getting close to the bottom. And once again, in our outlook statement, it does look like a number of the variable costs are starting to rise once again. But all in all, $168 million of EBITDA, obviously significantly above the lows of Q3. Slide 7, just reinforces the story on the cost side. And you can see all our major categories coming down in the quarter. But as I said earlier, starting to level off and some of them even turning upwards now. Page 8 highlights the debt story and you can see we've basically halved debt in the last few years. It's an important strategic priority for us and we're very proud of the fact that we've been able to bring this down. The - interestingly enough, that the final number for debt of $1085 million was in spite of the fact that we had a negative currency translation impact from euros to dollars of $76 million. So you know, we've set ourselves a target and we were basically at those levels and very pleased with that progress. Slide 9 has the maturity profile on that debt. And firstly, let me point out that the bigger maturities on the euro debt are still a number of years out. And we're confident that we can manage that refinancing. In the short term, we've got some debt maturing in the current year, some SA bonds, some term notes in South Africa, you know, we're confident that we will refinance them. And then that $88 million you see there is a loan in Europe and, you know, we'll be able to repay that with the cash that we have in the business in the current year. Turning to Slide 10, the cash flow and CapEx, the strong cash generation as you can see, despite lower profits, another $200 million. The CapEx came in the year under the $400 million that we talked about in earlier quarters. Really, that's just a little bit of spillage into the next year. The estimate of CapEx for 2024 is about $500 million. That's made up of maintenance CapEx of about $250 million, the sustainability CapEx of about $60 million, $70 million and then the balance is a big project that we obviously have talked about previously; the conversion and expansion of PM2 at Somerset and included in the '24 year is about $150 million for that. And I'll talk more about that just now. Slide 11, we keep stressing the disciplined capital allocation. I think you see the benefits of that in our cash generation and the free cash flow that we've made. On profit improvement side, we recently announced the closure of the Stockstadt Mill, and we're investigating the potential closure of the Lanaken Mill that will reduce capacity for graphic paper in Europe by about 800,000 tonnes. It's an important step in our strategy as we reposition the business towards the higher growth segments of packaging and pulp. We had other projects on the packaging side, smaller projects, part of our overall strategy to reposition the business. In terms of shareholders returns, yes, we didn't make our targets, but we were able to maintain our dividend. And as you know earlier in the year there was a share buyback program and then finally the expansion project at Somerset and conversion project included in the '23 CapEx number was $100 million for that project. So we're making good progress. Then moving to Slide 13, and I'm moving into the product segment and I'll just talk at a high level. All in all, for the year, volumes up, but we did experience lower selling prices as DP prices came off the highs that we experienced in the prior year. Margins lower because of that, but we did have higher costs and I've touched on that a few times. I'm very pleased that we were able to deliver record sales volumes for the segment in this quarter. And we've got improved production stability at the Saiccor Mill. The packaging and specialties segment on Slide 14. As I said to you earlier, it's the segment that's probably been the most impacted by the high inventory levels. At the same time, we've had the unfavorable economic climate. Having said that, you know we're obviously starting to see a recovery, and as we move into the new financial year and that high inventory levels becomes a thing of the past, we are anticipating a good recovery there and it's an area of the business that we want to continue to invest in. And then on graphics, I talked about it up front we are seeing a recovery, but it's not the V shaped recovery, it's a gradual recovery in demand. Our orders keep picking up week by week, and whilst we are not going to get back to previous levels, the kind of peaks that we got in 2022, things are looking better. And obviously we had to take substantial curtailment across the group because of the lower demand. And we did benefit from higher cost savings in the quarter. Regionally on Page 16, I'm not going to go into a great deal of detail but Europe was obviously challenging because of that's the region where we have the most exposure to the graphic paper markets. And from an economic perspective, it's the region that's experienced the toughest trading conditions. The North American business also faced tough economic challenges but with all the good work that we've done in recent years to reposition the business, we were able to deliver our second highest ever EBITDA. And then in South Africa, as I say, record profitability. And obviously, we've been making investments in recent years and those are paying dividends. The regional segments graphically and it just reinforces what we say. You can see that in all instances volume is up and obviously in South Africa and North America, margins improve. Europe, we still face the challenges and that's obviously why we announced the capacity closures that we have. Slide 18 talks to our strategic priorities and our Thrive25 strategy. These are longer term objectives. There's a lot on the Slide, so I'm not going to go through all of it but just an ongoing focus on operational excellence. We want to continue to look for cost saving advantages in South Africa, specifically the forestry footprint. If we can expand on that, that will lower our cost base and put us in a stronger strategic position. Pulp integration is an important priority, particularly obviously in Europe, where we're less pulp integrated on enhancing trust, a strong focus on our certification, our science based targets, our commitments in South Africa with regards to BBBEE and lowering our carbon footprint all of these are priorities. We want to grow in the packaging and pulp sides. We've got projects underway at Gratkorn to basically move that machine across to labels and the Somerset PM2 expansion and conversion projects. And then on financial health, I've touched on it a number of times, but great progress towards our debt targets. The Slide 19 talks about the same thrive pillars and it specifically focuses on our achievements for the year. Again, I'm not going to go through in great detail, but I think all the good stuff we did on procurement and from a cost perspective, you saw the benefits of that coming through, particularly in the latter part of the year. On enhancing trust, we committed to the science based targets during the year and we continue to make progress on that front. Growing our business is those same conversion projects at Somerset. First of all, in South Africa, we've got a pilot plant that's gone very well and we're doing some engineering on that and that's a potential future growth opportunity and then in terms of sustaining our financial health, we repurchased some of the '26 bonds earlier in the year and repaid some South African bonds. So further progress on that front. The next Slide talks to our Somerset conversion project. We like to keep you updated I'm pleased to say that it's progressing well within budget, on schedule, on track and still a long way to go, but so far so good and progressing well for the completion early in 2025; you can see some pictures on Slide 21, we're very excited about the progress. Then on Slide 22 is our sustainability targets, we obviously talk about our three P's, the people, prosperity and planet. On the people front, across the Board, great progress. Safety, it was our best ever safety performance. In fact, it was our best in all regions. Lowest number of injuries and it's a strong focus within the business. We continue to make progress on diversity, good developments on our targets for women in the senior positions. And then, as I said earlier on broad-based black economic empowerment, we are thrilled that we're still a Level 1 contributor. On the financial targets, obviously with the lower profitability, we did not achieve the ROCE targets, but we are focused on getting that back on track. On Slide 23 is our sustainability planet targets. I need to stress to you all that this is a per ton target. So because of the curtailment that we took during the year, the mills become less efficient. In absolute terms, we did come down, but on a per ton basis, we did miss our targets. However, as we fill the molds in the new financial year, we are confident that we'll get back on track in terms of those and ultimately achieve the targets that we've set ourselves, and that moves us into 24. You know that we've got our science-based targets approved. Once again, the downtime that we took does have an impact because it's on a per ton basis, but if we look at the progress that we're making, we are on track for our 2030 targets. Turning to the outlook and Page 26. The demand continues to be impacted by the global macroeconomic situation. It's still there, we are not out of things and it's difficult to pinpoint exactly when it will be in an end. And clearly it's still going to affect our Q1 2024 numbers, but we are anticipating further improvement as we move through the financial year. The graphic paper has experienced a permanent structural demand, and that's why we made the announcements to rationalize our capacity in Europe through the closure of Stockstadt and the potential closure of Lanaken, and why we are making the investments we are at Somerset and Gratkorn. Page 27, I need to call out that we have three big shuts in this quarter. Saiccor, Ngodwana, and Cloquet. Already Cloquet and Saiccor are behind us and the mills are back to production in Ngodwana, we're in the middle of the shut, but just to remind you that some of our bigger mills now we've moved to an 18-month window for these shuts. And that's why Ngodwana and Cloquet both fall within this quarter. The impact of those big shuts is $40 million. So when you are comparing Q4 of '23 with Q1 of '24, you've got to take into account that $40 million impact on a quarter by quarter basis. I said already the $500 million CapEx, So, I'm not going to go into more detail on that. So notwithstanding this, the economic situation that we face, the gradual recovery that's coming through these shuts that I referred to, all in all, taking that all into account, we anticipate that the EBITDA for Q1 will be below that of Q4. Operator, that's me finished going through the presentation. I'm now going to hand it back to you for questions.

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

James Twyman: Yes, thank you very much. Thank you for the presentation. I've got three questions just on the restructuring in Europe, if I may. The first one is the Lanaken closure. You mentioned that's going to cost you €150 million. Could you talk about how much of that is cash and whether you think that's going to be in this financial year? That was my first question. The second one was you made a €52 million loss in Europe. How much of that is due to exceptional depreciation in the quarter? I think it sounds as though you sort of bundled four quarters of depreciation into one quarter for the assets that you were planning to sell, but I'm not sure if that's the case. And then thirdly, on Stockstadt, the closure there, could you talk around what you think will be the benefit to profits from the closure? Thank you.

Stephen Binnie: Thanks, James. Glen and I will share this. Glen talk about that accelerated depreciation. The second question, and we'll share the rest. Just on Lanaken. Obviously, for the purposes of the accounts, you have to make an estimate. That is a process that's underway and you have to be conservative with the estimates that you make. It's not a complete process. There's discussions underway as we speak, and it's going to continue throughout the quarter. So we felt it was important to be conservative and give an indicative value. It is all cash, but we have to see how things unfold over the next few weeks. And it would all be cash in the current year. Specific to your question, Glen, do you want to talk about that €52 million depreciation in Europe in Q2.

Glen Pearce: That's right. So we identified the three mills, Kirkniemi, Stockstadt, and Maastricht, held for sale at the beginning of the year. We didn't depreciate them through the course of the previous three quarters. We changed our intention in terms of how we're going to be treating those mills and how we're going to be managing them going forward, and as a result, reversed the held for sale and then put through the annual depreciation on those three mills that came through in the fourth quarter. And that is about approximately $40 million.

Stephen Binnie: Thanks, Glen. And then on the third one, for Stockstadt you asked about, the impact. In terms of a cash flow perspective, it's going to be cash neutral. We have the closure costs, and then we sold the land. The party that we sold it to has obviously made their announcements. So from a cash flow perspective, it's neutral. On the fixed costs clearly, we're going to be taking out Stockstadt, and it's about €40 million.

Glen Pearce: It's about €40 million.

Stephen Binnie: €40 million of fixed costs a year, James, that we will no longer have to incur because of the mill not being there. We are confident that we can move the volumes away from Stockstadt, to the rest of our mills and obviously save those fixed costs.

James Twyman: Great. Thank you very much for that detail.

Operator: Thank you. Now we're going to take our next question. Just give us a moment. And the next question comes line of Andrew Jones from UBS. Your line is open. Please ask a question.

Andrew Jones: Just quick one on DWP. I mean, we've seen decent import volumes into China in recent times. Just wondering what your view is in terms of how much of that is actually fundamental improvement in demand versus the destocking dynamic. We've heard that potentially there's been quite a lot of that going into bonded warehouses, and stocks have been rising. So the import stats might be a bit misleading in that respect. What's your view there? Thank you.

Stephen Binnie: No, I'm going to allow Mohamed to expand a little bit further, but from my side, no, no, it's not going into warehouses. The demand has been strong, operating rates in China are the highest they've been in many years. Demand has been particularly strong. This is not going into warehouses anywhere. In terms of and as I say, I'll let Mohamed just talk broadly about the markets. But certainly things are more positive. The spot prices in China are now up to $885 in the last couple of days. Our mills are fully sold out and frankly, we can't make it quickly enough. It's going well. Mohamed, I don't know if you want to elaborate further.

Mohamed Mansoor: Yes, I would just say if you look at the - well, firstly, the operating rates have been very high for most of this year, and so that's consumed a lot of dissolving pulp. Secondly, if you look at the inventory levels of viscose through the supply chain, and without calling out specific numbers, but they've been at very, very low levels, and that's keeping operating rates high through the value chain for viscose, as well as viscose made or yarn made from viscose, and then textile made from viscose yarn. So everything that we monitor and that we see points to the pulp being consumed for production of viscose.

Andrew Jones: Understood. It's very clear. Thank you.

Operator: Thank you. Now we're going to take our next question. Just give us a moment. And the next question comes to line of Brian Morgan from RMB Morgan Stanley. Your line is open. Please ask a question.

Brian Morgan: Hi, guys, thanks very much. Just can I ask on specialty packaging in Europe and North America. Just give us a bit more color on the market there, what your clients or customers are saying and where your order books are? Are you seeing any green sheets yet?

Stephen Binnie: Yes. I'll allow Mike and Marco to talk a little bit more about their respective markets. But broadly speaking, we are seeing improvement, but it's not a sharp recovery, it's a gradual recovery. With the benefit of hindsight, we are realizing that there was more inventory being held downstream than we had anticipated. Obviously, the macro factors obviously were at play as well, and the lower consumer demand, the higher inflation, all of those factors have contributed. So we're seeing a progressive improvement, and certainly, as we get later in the year, we would expect that to continue. Mike, I'll let you talk specifically about North America there.

Michael Haws: So, Brian, on the packaging side, in North America, probably the best reference is about a 9% improvement in volume for orders quarter-over-quarter. So we're seeing that steady improvement, although we're still a ways from full occupation. So I think that's the best reference right now. And we forecast that to continue in North America.

Stephen Binnie: Thanks, Mike. And Marco?

Marco Eikelenboom: Yes, thanks, Steve. In Europe, probably still somewhat more subdued than what Mike is giving us from the U.S. We have a European, very specific European situation where there's still a lot of economic worry about how the war ultimately will pan out, what the energy situation will be over the winter, and how inflation will be tamed. Ultimately, having said that, as you mentioned during your presentation, Steve, there are first signs of a very, very slight improvement, both on graphics as on some of the packaging and specialty segments. The flexible packaging in general has held up slightly better than, for example, container board and some of the paper board grades. But I said, as you mentioned, it's certainly not a strong rebounds, but certain positive signs are to be seen.

Stephen Binnie: Okay, Brian.

Brian Morgan: Very good. Thanks, guys. Super. Thank you. Can I ask another question, if I may? If you could just give us a bit of sort of color into the Board's thinking around the dividend or trade-off against the buyback debt levels. Could you just flesh that out for us?

Stephen Binnie: Yes, look, I think on the dividend, we made a decision last year to resume dividends. We did that because we didn't take the decision lightly. We did that because we were focused on repositioning our balance sheet. We think we've got a stronger balance sheet. And with that strong cash generation, we believe that it made sense to continue the dividend and reward our shareholders for their support. In terms of share buyback, obviously, we did a program earlier in the year. We've paused that for the time being. We want to see how things evolve in terms of our market recovery and you know we'll continue to monitor, but we're not doing share buybacks at the moment.

Brian Morgan: Very good. Thank you.

Operator: Thank you. Now we're going to take our next question. And the next question comes of Sean Ungerer from Chronux Research. Your line is open. Please ask a question.

Sean Ungerer: Good afternoon, Steve. Thanks for the time. First question relates to the European graphic paper market. It's probably a bit of an unfair question, but obviously there's been quite a bit of rationalization on uncoated wood free side, meaning the coat of mechanical and the coat of freeze was probably a little bit weaker or much weaker. Perhaps you could give us a bit of flavor or quantify to what extent you think more capacity needs to come out of the market. That's my first question. Thanks.

Stephen Binnie: Yes, look, as we assess the markets in Europe and where we think it's going to stabilize at, you know with the recovery that we're having at the moment, the market is going to be around 70% of what it was in 2022. You do the math, and that indicates roughly about a million tonnes too much capacity. Now, obviously, from a Sappi perspective, we've got to focus on our assets and we've got to focus on ensuring our assets are full. The volumes that are at Stockstadt and if we ultimately close Lanaken, those can be moved to our other mills. So based on where we think the market is going to be and the capacity that we have, that will enable us to fill all our machines in Europe. Now, perhaps your next question will be what comes next? But obviously, we've got this conversion or the additional flexibility that we're building at Gratkorn to make labels, wet strength labels, effectively, that machine is going to be full on labels when the project is complete. So that's the equivalent of taking out another machine out of graphics. So that's another 250,000 capacity. So all in all, we're doing what we need to do to manage our assets from a cost perspective. You heard earlier that Stockstadt is going to save us $40 million of costs. Lanaken, we're obviously still in the process of finalizing that, but that's two machines and you know ultimately, if that capacity comes out, you're going to have substantial cost savings there as well. But we're focused on selling our machines.

Sean Ungerer: Okay, excellent. Steve, thanks. I appreciate that insight. And then I just guess turning to the other side of the coin is the pricing front. So, I mean, if you look at the mix in Q4, I think Q and Q, it was down about 8%. How are you guys thinking about pricing evolution going into 2024? Because obviously you've had some new demand that should sort of be coming out, but at the same point you are seeing deflation coming through on the cost base. Is it fair to assume it's still going to be a steep correction in pricing? Or is there the argument that, for example, one of the - of Woodfree peers announced a price increase recently - the cost base, which seems a bit contradictory. Maybe give us a bit of feel on that. Thanks.

Stephen Binnie: Thanks, Sean. Obviously, you've seen prices come down in the quarter that's gone by. It's difficult to forecast where prices will go in future and there's lots of negotiations underway, so I can't comment too specifically on that. But what I would say is that we want to protect our pricing for as long as possible, costs have bottomed out now, as I indicated in the investor presentation. So we want to protect our margins and in our negotiation. You know the message we're sending out is that costs are have now stopped dropping and starting to go up.

Sean Ungerer: Thanks. And it's just going to the - side. Steve, I think there's a comment in the results procured around the cost inflation impacting the DP business. I'm assuming that flagging wood, maybe if you could just expand on that and then I guess sort of just linking to on the VSF front. Yes, I mean, utilization rates are high, stocks are low, but you still see VSF prices going backwards. Maybe you could give us some insight into how we should read that. Thanks.

Stephen Binnie: Yes, your comment is right. In South Africa, whilst we own many of our forests that supply the wood, particularly Saiccor, we still buy a lot of our wood and timber prices just continue to rise. So yes, that's what we were referring to. I would speculate longer term that wood prices will continue to be under pressure because it's a sought after raw material. What's very important for us is to increase our forestry footprint in South Africa and we periodically buy smaller plantations and we'll continue to do that. On the markets itself once again, I'll let Mohamed elaborate further, but yes, look, VSF prices have come off a little bit, but when you compare it to the alternative fibers, cotton prices, the gap is still much, much larger than historical norms. And it's come off a little bit in recent weeks, but we're certainly still seeing strong demand for dissolving pulp. And that's why you saw the movement upwards this week. The prices that are getting offered out there in China, in the marketplace, are higher than even the list price that you saw, the [$88.5]. So we see that as a positive. Mohamed has already talked about the fact that inventory levels downstream are relatively low, demand is strong, and we're getting pushed for more volume. I'll hand you to Mohamed just to say more.

Mohamed Mansoor: Steve, I would just add that the VSF price has been more flatlined and with the volatility that you've seen from cotton, it's actually encouraged substitution of fiber away from cotton and move towards viscose staple fiber, which is why the inventory levels have remained very low even through the seasonally slow time and operating rates have stayed very high. I think the VSF producers have probably purposefully tempered their pricing expectation because if you look at the gap between cotton and viscose staple fiber in terms of pricing, there is room for some upward movement, but it has helped the demand for viscose fiber and in turn dissolving pulp.

Stephen Binnie: Thanks, Mohamed. Thanks, Sean.

Sean Ungerer: And then just last one. In terms of the effective tax rate, or perhaps cash taxes to be paid in 2024. Can you give us some insight on that, please?

Glen Pearce: Yes. Okay, so effective tax rate for the year was just over 20%, it was 22% and we benefited from investment allowances that came through on the Saiccor project. We won't be - and we utilized all our assessed losses in South Africa also because of that investment. So we anticipate the price, the rate to increase into 2024 and the tax paid for the year was $56 million. We anticipate it's going to stay at that level in terms of tax paid going forward.

Sean Ungerer: Okay, excellent. Thank you. That's all from my side.

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

Brent Madel: Yes, thanks very much. So you referred to the graphic paper market as not potentially having a V shaped recovery. Just referred to the U.S. quarter on quarter improvement in demand there of 24%. I don't know if that's just a base effect, but I don't know if you can just talk around the better improvement in graphic paper demand in the U.S. And then my second question, if I can just extending the discussion on dissolving wood pulp. Yes, demand is strong. I just wanted to know what your views of where you think the dissolving wood pulp price will average during the financial year. The estimates are out in the market. I guess it's between the sort of $915 and $920. I just want to know if you feel that with the strong demand that there's upside to some of those estimates out in the market. Thanks very much.

Stephen Binnie: Yes, the graphic paper in the U.S., and Mike can give me specific, but bear in mind it came off a very low base. The operating rates, Mike, in Q3 and Q2 were in the 50s somewhere, right? I don't recall the specific percentage, but we're coming off a very low base with that incremental growth that you've seen. Mike, I don't know if there's anything you want to add there.

Michael Haws: No, Steve, I really don't have anything to add. They did come off a very low base and we did have, as you referenced, about a 24% improvement quarter over quarter. We're still obviously not back to Q4 '22 levels, which would be full occupation.

Stephen Binnie: Yes. So it continues to rebound and I guess we have alluded to it on the call, but it's clearly recovering at a faster pace than we are seeing in Europe for example. On your second question, it's hard to give a specific forecast. All we can talk to is the market dynamics. And on the positive side, you are seeing a recovery in China, you are seeing lower inventories downstream, you are seeing a recovery on the supply side, you're seeing a recovery in paper pulp prices. The global economy, you've got to believe, will start to recover from the challenges that it's had in the current year. There's no new supply coming on board. So all in all, the short term dynamics are positive. So whilst it's difficult to give a specific estimate, I think it's fair to say that we think the prices will be higher than the current levels in the new financial year. Independent industry experts are all pointing to numbers well into the 900s for the new financial year. Mohamed, is there anything you want to add to that?

Mohamed Mansoor: Steve, just one comment. On the supply side, there have been a public announcement of a closure more recently in the U.S., so that will take out some capacity as well. And then there has been a restart. Again, it's public information out there in Brazil but that restart has not gone as well as I guess it would have been expected because we're not seeing any of that product make its way into the market. So on the supply side there's also some further reduction.

Stephen Binnie: Yes. So net demand continues to grow and there's not a lot of new supply coming. So net positive. And by the way, while we're on this topic if we look beyond the current financial year, the medium term outlook is even more positive because demand continues to grow and we're not aware of any new capacity coming. If you're looking at two or three years we're even more positive about pricing.

Brent Madel: Great. Thanks very much.

Operator: Thank you. Now we're going to take our next question and the next question comes line of Maggie Cheng from Indosuez. Your line is open. Please ask a question.

Maggie Cheng: Yes. Hi, gentlemen, thank you very much for taking my questions. Since next year the CapEx will be higher and there will be also restructuring costs. Do you have a will that whether operating cash flow can fund both Capex and restructuring costs. Then my second question is about the inventory in packaging and specialty paper. Could you give us some color? Like how many months of inventory in the markets, in the U.S. and Europe? Then the last question is on the net debt. Now you are very close to $1 billion. Are you done with the leveraging? Thank you very much.

Stephen Binnie: Yes, just taking each of the questions in turn. Obviously, we've got higher CapEx in the current year because we're funding the big project at our Somerset mill. Taking that into account, and if you're comparing you know the current year as a comparison, you are talking about an additional $120 million of CapEx. So that is going to lower our cash generation year on year. If you were to compare it. On top of that, we do have the closure of, potential closure of the Lanaken mill that we referred to earlier on this call. So that would be a negative cash outflow in the year that you need to take into account. The broader question on net debt is, yes, we are committed and we will be disciplined. Our capital priorities remain intact. We're not committed to any other big projects at this point in time. We want to see the Somerset project through to completion. So we're being very disciplined. But net-net taking into the account the things that I've described, you would have - likely have an outflow in the current year. The inventory, it's hard to be very specific about the destocking and you know we keep thinking it's close to the end, but it's clear it's hard to call the exact ending to that destocking process in the packaging segment. All we can say is that it's gradually getting better and better, but it does look like Q1 will continue to be impacted for the reasons that we described. There will be an improvement, but it's not going to be V shaped and we've said that a few times on the call.

Maggie Cheng: Yes, that's helpful. Thank you very much.

Stephen Binnie: Okay, thank you.

Operator: Thank you. Now, we're going to take our last question for today. Just give us a moment. And the question comes from the line of Saul Casadio from M&G Plc. Your line is open. Please ask your question.

Saul Casadio: Hi, thanks for taking my question. Just a quick one, on your guidance for fiscal Q1. You guided for a sequential decline and you singled out the impact of the three shots in the quarter for $40 million. Is the sequential decline entirely due to that factor or there is more to it?

Stephen Binnie: Look, it's still early. We're assessing it. I think the performance you know is we're seeing a recovery in the market. But what I will point towards is the - and I've said it a few times on this call, that costs are coming off the lows now and costs have turned. So net-net, I'm not going to give you a specific number, but those are the big factors at play. You got costs starting to rise again, but the big factor is the shuts that are referred to. We need to see the shape of this recovery and demand that we're experiencing. But Net debt, taking that all into account is why we came out with the guidance that we did.

Saul Casadio: Okay, that's very clear. Thank you. Thank you very much.

Operator: Thank you. There are no further questions for today, and I would like now to hand the conference over to Steve Binnie for any closing remarks.

Stephen Binnie: Thank you, Operator. I just want to take the opportunity to thank everybody for joining us on the call today and look forward to discussing our Q1 results in three months' time. Thank you very much.