Sappi Limited ($SAP)

Good day, and welcome to the Sappi FY 2026 Results Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand you over to your host today, CEO, Steve Binnie. Please go ahead.

Thank you, operator, and good day to everybody. Thanks for joining us. As always, I'll go through the investor [ presentation ], calling out the page numbers as I move along. And to start just on Page 2, just to draw your attention to our comments around forward-looking statements. Moving to Slide 3, which is a high-level summary of the quarter and the results. And it's fair to say it's been a very challenging quarter. And perhaps just focus on some of the larger items that have influenced the performance. And it's really 2 broad themes. And firstly, it's selling prices were down across all the regions and linked to the weak market conditions. But more specifically, the DWP price was substantially lower than a year ago market prices, $130 actually lower than a year ago. So that had a substantial impact. We also -- we've seen packaging prices globally come under pressure, which has had an impact on our markets even where demand has been pretty good. Unfortunately, that knock-on effect of the lower prices has influenced those markets, too. The other big theme is the exchange rate. And specifically, the rand-dollar exchange rate. We know it's predominantly linked to dollar weakness, and which is ultimately rand strength. And obviously, us being a South African manufacturer with revenue in dollars and costs in rand, ultimately, that squeezes margins significantly. But even in Europe, when you convert your costs to dollars, that also increases your costs on a relative basis. In quarter, we also had the Saiccor shut, that was about $10 million impact. Then we had a couple of nonoperational once-off write-downs. Firstly, on the forestry fair value, we have to use market prices to value our forests, and we typically benchmark and use the timber export prices out of South Africa into global markets. They're not our prices. They are woodchip prices. Interestingly enough, the dollar price was unchanged compared to the prior quarter. But unfortunately, when you convert that into rand and the rand strength, that necessitated a write-down of our forests. And then we had impairments and the main area where we had impairments was on our European business and mainly in our European graphic business. As you know, we are going to be selling assets, our graphic assets, into the UPM joint venture if that's approved. A significant proportion of that write-down related to those assets. And then we also had a write-down of our Matane Mill in the U.S. Anyone following the pulp markets and specifically the high-yield [indiscernible] prices have also been weak. So we wrote that down as well. Moving to Slide 4. And we thought it would be important to just focus on a few of the big drivers of our earnings. And I've already touched on these 2 themes, the lower DP prices and the rand-dollar exchange rate. And we've got data here going back -- these are our pulp segment selling prices. And when you go back, we've got -- going back 10 years or so, and you can see that there was always -- they always moved in opposite directions. And for the first time, over the last year or so, unfortunately, they've moved in the same direction, which has magnified the impact of those 2 key variables. We've got some numbers down below, which talks to their impact on our earnings. But you can see it's vast. And specifically in South Africa, that impacted on the profitability of our South African business. Moving to Slide 5, which is our -- the ramp-up of our Somerset 2 volumes and our packaging volumes in the U.S. And I'm pleased to say that we saw good volume increase. Particularly towards the end of the quarter, we saw an acceleration. I'm actually pleased with the progress that we're making, and we would expect that to continue in the quarters ahead. And we're very -- to the end of the quarter, we were very close to the startup curve that we put together when we approved this project. So making good progress there, gaining market share, and I'm confident that, that will continue in the quarters ahead. Unfortunately, the SBS market prices, like all global packaging markets, has been under pressure. And if you compare the market prices, quarter-on-quarter, you can see that they were down about $100 a ton compared to the last quarter. And that had a big impact on profitability. So all in all, very pleased with the ramp-up. The volumes are going well, but market prices in the short term under a little bit of pressure. Slide 6 is our earnings bridge from a year ago to now, and it's the same themes that come through. Big impact on selling prices, negative. We've done a lot of great work on taking costs out of the business, which offset some of that, but clearly not all. And then the currency -- when we compared the currency conversion, that was a negative as well, which ultimately led to the $52 million EBITDA that you saw compared to what was there in the prior year. Moving to Slide 7, cost inflation, which is obviously another big driver. And in the quarter that we just reported, we did see a rise in a number of our key costs. Even before the Iran war started, we started -- things were starting to increase, but that was exacerbated when the war broke out. And it's had an impact on the quarter, but we thought it would be useful just to share with you what it meant for the quarter ahead. And you can see that there are some significant rises. The one we're most concerned about is the delivery cost because that's a big number. And we all know that fuel prices -- oil prices rising, shipping costs are rising as well. And that's got a vast impact. But also a number of our raw materials that we're using in our mills, and we list 3 there -- 3 big ones, sulfur, caustic and latex. And with the constraints on shipping globally and what's happening in the Hormuz strait, a lot of that product, particularly sulfur is not really flowing. And there's a bit of a scramble to get your hands on these products. Things like latex is obviously linked to the oil price. So those have been rising substantially. And when we take these all into account, we estimate, quarter-on-quarter, that that's about a $30 million increased cost. And it's for that reason -- I know there's probably some questions about why our outlook statement would be negative because other things are improving, selling prices, and we're doing a lot of great work on mitigating and selling prices for DWP are going up, graphic prices are going up. But unfortunately, when you get a $30 million increased cost, that is why we have to be cautious with our outlook statement. Moving to Slide 8 is our net debt leverage. Obviously, with the lower profitability, our leverage ratio has increased 6x. And it's very important, with that in mind, that we proactively negotiated a suspension of our leverage covenant. I'm very pleased to say that, that was achieved. That emphasizes the strong relationships with the banks that we have, our partners and their understanding of our business. And I'll touch on that in a little bit more detail. Pleasingly, despite the lower profitability, our debt -- if you look across the last 4 quarters, our debt has actually been very stable. And that emphasizes how the discipline that we're bringing in despite the low profitability that we are able to proactively manage our debt and keep it at these levels. So I think that's a big achievement despite the low profitability. Moving to Slide 9, just as our debt maturity profile. We don't have any major maturities in the next 18 months or so. The next big one is our 2028 bonds, and we're just monitoring the markets, and we'll pick the optimal time when to refinance those. Moving to Slide 10, which just has the cash generation. Clearly, the lower profitability impacting the cash generation. As part of our Back to Basics and our focus on strengthening the balance sheet, we brought our CapEx down. We're looking at about $250 million for this year and a similar number for next year. Moving to Slide 11, and it's a theme that I've touched on already, but really very pleased that we were able to proactively engage with our banks. We got unanimous support from our bankers. They've been with us for a long time. They understand Sappi. The understand the markets that we're in and very supportive. So very pleased with that progress. In terms of our flexibility, we have $800 million of liquidity across cash on hand and our unutilized RCF facilities. So we're pleased with the liquidity that we have, and we believe that gives us the flexibility to negotiate through these tough times. Maybe just one point on the covenants, that suspension period is through to March 2027. Also, we did talk about this at the end of the last quarter, but it occurred during this quarter, we moved out some of our short-term debt, once again emphasizing the strong relationships with the banks. And as I illustrated earlier, that improved our maturity profile. So strong focus on Back to Basics. We talked about CapEx. On the cost front, yes, there's a lot of challenges, and I've called out the numbers for you, but we have been able to implement a number of cost-saving initiatives. We've been giving you updates from prior quarters. A lot of it is in Europe. As you know, we took out some machines and some capacity, some support costs and -- but it's not just that region, other regions, and we've been able to achieve $71 million savings year-to-date. Slide 12 is our Thrive strategy, still very relevant. But as I keep emphasizing, Back to Basics, back to a focus on what we can control around operational excellence, sustaining our financial health and discipline, trust across all our stakeholders remains important with our people. They're aligned with what we're doing and what we're focused on. And ultimately, in terms of growing the business, I think one highlight of our results despite the weak performance is our volumes are actually pretty stable. And we've been ramping up in the U.S., as I mentioned. We've taken out a lot of capacity in graphics over the last few years, but our volumes are still stable. And I think I've got [indiscernible] now to emphasize that to you. Move to Slide 13, something you've seen before in terms of our joint venture with UPM. It's progressing as we would have expected, finalizing the final terms and still committed to -- ultimately, we've got to get shareholder approval and then targeting to complete the transaction by the end of 2026, as we've talked about before. The key deadline or the key influencer of the time line is the regulatory approval on the competition side. And that moves it into Slide 14, the next one. And just to say, it's progressing as expected. We knew it was going to go into Phase 2. With a transaction like this, of this scale and significance, it was always going to go to a Phase 2 investigation. We continue to engage with them. And ultimately, we think we've got a strong case and looking at a final decision closer to the end of this calendar year. Turning to the segments on Page 16. Firstly, on pulp, it's clearly been a challenging time, and it's for the same factors that I've already described, the combination of the lower DWP prices and the -- when you convert that -- the rand-dollar exchange rate. What I would say is that market conditions for DP have improved in recent times. It didn't come early enough to influence on this quarter, but we did see an $845 a ton by the time we got to the end of the quarter. But most of the quarter, I think it was under $810. So had very little impact. And then subsequent to that, you'll see in the outlook statement, in the last few weeks, it's gone up to $880 a ton. So that is helping us. And we're feeling good about the demand, and we're feeling good about the outlook on pricing. But with taking all that into account, it meant that, unfortunately, for the quarter that we've reported, it was close to breakeven. Then in the Packaging segment, I think the big story here is that volumes have been better, ramping up in North America, and I've already described that to you, good progress and certainly accelerating. Europe, actually, we've seen nice volume improvements. And in South Africa, demand continues to be healthy. Unfortunately, these global markets are all interlinked. And we know there's excess capacity in Europe and selling prices across the globe have been under pressure, and that's influenced all of our markets. In South Africa, specifically, once again, the rand-dollar exchange rate plays a role because that makes -- it makes imports cheaper on a relative basis. But all in all, feeling good about demand and feeling good about volumes, but we need to -- clearly, we need to get selling prices up as we move forward. And then on graphics, Page 18. And -- well, firstly, to my point that I was making earlier, if you look at the 3-year volumes for graphics, now they've been relatively stable. Now that's despite us taking out Stockstadt, despite us taking out Lanaken, closing the machine at Kirkniemi, converting the machine at Somerset, other smaller capacity taking up. We've been able to keep our volumes and improve our market share. So we are very pleased with that. We are proactively managing it. It's not a great margin, but it's a reasonable margin. Europe, slightly lower than the U.S. in terms of relative margins. One of the tricky aspects, as we know, in Europe, is that there is excess capacity, and that has influenced their margins. But having said that, we're pretty proud of what we've done here. And we've always talked about proactively managing graphics. And I think this page illustrates that we've done a reasonably good job here. Then Page 19 talks about the regions themselves and all these things we've touched on. Volumes, okay -- under the circumstances, okay. North America, obviously, last year, we had the graphics before the machine conversion, but we are picking up the volumes now as we ramp up on Somerset PM2. [indiscernible]. And you can see that that's coming through. And then on variable costs, although Europe and South Africa down, when you convert those -- when we consolidate those, when you convert that all back to dollars, it does have an impact. For example, the euro is down 11%, but our costs are down 7%. The rand is 12% stronger and our costs are down 5%. So when you bring that all together, that's why variable costs at the group level, you don't see that same decline. Slide 20, our ESG is an important part of who we are and why we do business. A number of awards. We won best employer at Forbes once again across a number of categories. We've won various sustainability awards and our forestry certification is good. Our [ BE ] status continues to be at the top level. So a lot of good work being done on ESG. Moving to the outlook statement and Slide 22. Firstly, and I've already touched on this, DWP prices have picked up and demand is good. I would argue that some of the challenges in -- with the Iranian war are helping us because there is some concerns about supply chains and getting product. So that will help us. The volumes in North America are benefiting as we ramp up that curve, and we are confident that we can continue to do that as we continue to promise to you, but pricing is the headache that we have across all our 3 regions on packaging. Graphics, we've announced price increases in Europe and in the U.S. Firstly, in Europe, the first price increase was effective 1st April, and we're making good progress. We've announced the second one for mid-May, and we're working on that. It's obviously early days. In the U.S., we announced also for early April, coated freesheet and labels, and once again, making good progress. Unfortunately, and I touched on it already, it's costs. And I talked about the $30 million impact from those key variables, which gave us the reason to be cautious. The -- we have a big shut in Ngodwana in the quarter, $23 million. So it's important to call that out. We did have Saiccor in the last one, but this is a bigger one than the Saiccor one. I think we're getting a lot of benefits from our Back to Basics, taking out costs elsewhere, and the discipline around our balance sheet and CapEx. But ultimately, when you take that all into account, the most important factor is the cost that I talked about. And because of that, we had to be cautious and we -- and for that reason, we are saying that Q3 would likely be below. We are getting good traction on selling prices and cost savings elsewhere, but not enough to offset yet those higher costs. And for that reason, we say it will be below the Q2 number. So operator, that's me gone through the investor presentation. I'm now going to hand it to you for questions.

[Operator Instructions] And the first question comes from James Twyman from Prescient.

I've got, let's say, 2 to start with. The first one is, you talked about a $30 million increase in costs. I assume that was in the last quarter. Could you give us some idea about what you're expecting for this quarter in terms of why you're more cautious than you would have been? Are we looking at a similar sort of number? And then the second one was in terms of price recovery. We are seeing prices going up across the board. Are you seeing that for SBS cartonboard in the U.S. as well? So that's my first couple, if that's okay.

Yes. On the cost, that number I gave you was Q2 compared to Q2. And the reason I called it out to you was we were getting a lot of questions about our outlook statement, and we wanted to show you why we were being cautious. If it wasn't for that cost rise, we would have been saying our earnings was up. So it was important that I pointed that out to you. These are big jumps. The logistics, shipping and fuel cost is a big chunk of that $30 million. And it's not unique to Sappi, but it's a vast impact. Clearly, if there was to be resolution on the -- in the Iranian war, maybe that could come down. So that's potential. But what we felt was prudent to do was to call out to you what we've included in our assumptions. Sorry, James, your second question. No, not yet on SBS. We're getting good traction, as I said, on graphics and labels, but not yet on SBS. We're in a ramp-up phase. So that's our focus. And -- but at this stage, we're not yet seeing price.

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

Look, what I would say here, a couple of comments on North America. Well, firstly, remember, North America has pulp as well. And you know that overall, the pulp segment was close to 0. And you know that, relatively speaking, the costs are higher in the U.S. versus South Africa. So that was a contributor to why North America overall profitability would have been less. As we ramped up the volumes, you are still not at full operational efficiencies. On selling prices, there's a little bit of a mix issue going on there. But specifically in the SBS segment, we gave you a slide on the market, SBS prices were lower and so when you add that to everything else that I've described, that explains the profitability in the North American region in the quarter. Obviously, as we move forward with -- you can hear that we're confident of growing our volumes. That helps with fixed cost absorption. We're also able to optimize our machines because our PM1 machine in Somerset is a swing machine. So if we can make a little bit of higher-margin in graphics as it currently stands, we can also do that as well. So we are more optimistic. And maybe one last comment and maybe Mike can elaborate further. We're not at optimal operational performance at the mill at the moment, not necessarily linked to PM2, but there's further improvement to come. And maybe Mike can expand further there.

Thanks, Steve. We have had, on the assets other than PM2, some reliability challenges that we put behind us in the last 1.5 months. So we expect to see improved performance there, which is specifically around graphics volume. And in addition to that, you referenced the PM1 ability to swing to graphics, but that's something in the line of 10%, maybe 15% of the volume max as we're still meeting customer needs for SBS. PM2 has been running very well and is right on [indiscernible]. And we're expecting to keep that machine full going forward with where things are. So we're pretty optimistic that the trends for manufacturing in Somerset are on track. Now I'll just offer one other caution. The start-up curve improves that last, give or take, 15% of machine production over the next full 12 months. That's not a light switch that comes on. It's optimization of a lot of different processes. So we expect to be, by the end of this year, at 85% of the nameplate and then building from there.

We're now going to move on to the next question in the queue. And this question comes from Brian Morgan from RMB Morgan Stanley.

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

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

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

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

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

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

Brian, still the same time line, right? We are conservatively saying that it will be completed by the end of the year. There was no surprises in the announcement. And yes, nothing new. Hopefully...

There's no deadline for the EC, right?

No. No. And I think we said in the announcement that we're getting close to filing transaction agreements. And then it's getting through that second phase with the authorities.

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

So the total impairments is over -- it was $220 million. And we've got an average -- on our heavy machinery, we've got an average depreciation lifetime of 15 years. So we work it out from there.

Some of it is goodwill, though.

No, the goodwill is excluding that. Goodwill is on top of that.

We're now going to move on to the next question in the queue. And this question comes from Sean Ungerer from Chronux Research.

Steve, can you hear me?

Yes.

Excellent. Sorry to harp on the pricing environment, but just taking a step back to specifically SBS in the U.S. So no price increases or no price increases sort of expected. Sort of, as we stand today, are you still seeing pressure on prices? Or are they stable? That's just the first one around SBS.

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

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

Yes. Look, a couple of comments. There has been 2 capacity closures. And you would have seen that in our competitors' results announcements. And you've seen our volumes go up. So not everybody's volumes is growing. So that means we're taking market share. Secondly, on folding box board or imports, folding box board imports, yes, the tariffs helps a little bit, and we have seen that as an opportunity for us as well.

Okay. Great. And then just going back to pricing around graphics. In terms of gaining traction, is that both in North America and Europe or mainly North America? Because if I just look at the sort of prices that we have available to us comparing sort of spot in May compared to the Q2 average, coated woodfree in Europe is sort of flattish and [indiscernible] -- sorry, coated mechanical is up about 2%. I'm just trying to tie that back.

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

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

Yes. Steve, very similar in Europe, where we announced first half of February for an effective increase, beginning of April as well, 2nd of April, basically implemented. So you will see it in the coming weeks in -- I guess, in the industry pricing stats, Sean. In Europe, there is a second announcement, as Steve alluded to, which we're busy implementing right now, and that's both for graphics as well as certain packaging and specialty grades. So there is a tendency across the board that prices will increase further.

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

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

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

[Operator Instructions] And we're going to move on to the next question in the queue, which is from Detlef Winckelmann from JPMorgan.

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

Yes. Look, the volume increase on our part, and I'll let Mike go into more detail, it's not us that's been driving the price down. It began to happen before we came to market, and we've been very disciplined. And a lot of the increased volumes that have come through is linked to our offering, the quality of our product and the relationships that we've been building. And we've talked about it many times. We think we've got the best machines in the industry. And I think the customers are supporting that view. Specifically on pricing below market, Mike, do you want to -- I haven't really heard that.

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

If I can ask one more, I mean, regarding pricing in the U.S. I mean, we're seeing SBS prices and CRB prices virtually the same. I mean, I would argue after yield, et cetera, you're probably finding SBS is almost cheaper than CRB today, yet a higher quality. Are we seeing any substitution from customers away from CRB into SBS? And curious, is that actually quite easy to do? Or is it quite a decision for customers to do and there's a cost involved?

Yes. Look, you are right. The prices are very close, and it probably does create some opportunities. And yes, Mike, do you want to...

[ Nothing to add ]. We'll leave it at that.

Yes. We can't go into detail there, Detlef, as you know, but it does create opportunities.

And we're now moving on to the next question in the queue. And this question comes from Saul Casadio from M&G.

The first one is on -- you mentioned the FX, you singled out the importance in the numbers. I was wondering whether you could kind of single out the impact in the quarter of the FX move, particularly U.S. [indiscernible].

Yes. Look, we've got that bridge, which is obviously to a certain period. I think the best way to think about ForEx, specifically around dollar, and it's something that we've consistently said, and we still think it is relevant. And that's for every $0.10 move rand-dollar -- on an annual basis, that's about $4 million. The rand, Glen, a year ago in Q2 was?

It was -- the average rate was ZAR 18.50.

In Q2 of last year?

Q2 of last year, yes.

Yes. And this one?

This one is ZAR 16.36.

So that's, give or take, ZAR 2. You multiply that by -- 20 by 4 and then it's 1 quarter. So you're talking in this quarter alone, $20 million just on that, just on the rand-dollar exchange rate.

Okay. Okay. And also considering your divisional results and looking at the results for the chemical cellulose, wondering whether the move in the FX is big enough to shift the position of Saiccor on the cost curve. We used to think of Saiccor as the first quartile, but wondering whether that might shift with the FX moving in the wrong direction.

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

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

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

Okay. And on this point, do you think that -- setting aside Q3, I was just looking more and more in general, do you think that overall, you might be able to offset the cost inflation with the price increases or it's still TBD, still to be -- you still have to get there?

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

Yes.

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

Okay. And last one, if I can squeeze in. You mentioned in your prepared remarks, the scramble to get your hands on some raw materials, and you talked about sulfur and latex. Just wondering whether in terms of inventory days for those raw materials, you're getting close to the risk of a supply crunch is still far from there, it's still normal level of inventories? And if you can...

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

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

We're now going to move on to the next question in the queue. And this question comes from [ Joindre Peters from Mpozho Wealth].

First one, just in terms of the European restructure. It looks like you've spent less than the kind of 40 million you initially earmarked. Do you have any spend left there? And how are you tracking in terms of the cost cut benefit, the kind of 60 million annualized you're expecting?

No. So we've spent most of -- the plans that we have as far as those costs are concerned, there are no large additional restructuring costs coming through in the next 2 quarters.

And we've realized the benefits that we expected in the time lines that we expected. I don't think -- there's not been any surprises.

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

Yes. Look, sometimes you have shipping timing differences and so on. So we're fully sold out. And our inventory levels are low, great demand for the product. And ultimately, if you go across the 3 mills, we've got Ngodwana around 250. Saiccor, we're looking at about 850, 860. And then Cloquet, we do make some paper pulp for our paper machines there. But in terms of -- Glen, have you got the number for -- or Mike?

230.

230 million for Cloquet. So that would be the annual numbers. And we're fully settled out. So sometimes you get a little timing differences, but nothing to worry about.

Appreciate it. And the last question from my side. In terms of interest expense throughout the year, into the quarters, is there any kind of lumpiness there in terms of the expectations from the year? Q2 was up quite a bit from Q1. What do you expect for H2?

So for Q2, we had about -- it's $26 million. I expect it to be at similar levels for the next 2 quarters.

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

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

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