Good day, everybody, and thanks for joining us. As always, I'll move through the investor presentation, calling out the page numbers as I go. I'll start on page three. I'm very proud to say that this was a very strong quarter for Sappi. A period of record performance in Sappi's history, the highest ever EBITDA, the highest ever EBITDA for European business, the highest ever EBITDA for our North American business, the highest ever EBITDA for our packaging business. As I say, I'm just very proud of the performance, particularly from the lows of COVID, less than two years ago. It's been quite a journey, and it doesn't come easy. I think it's through a lot of hard work, a lot of resilience in the business.
Ultimately, the success that we're achieving is. I'm very pleased that it's broad-based. Despite the kinda headwinds that we're currently facing, the business is in a much better place, and we're gonna be coming. We're obviously coming out of COVID, much stronger and looking very good in terms of our strategy as we move forward. What was behind, what were the primary drivers? Firstly, the tight paper markets. There's a shortage of paper that enabled us to put through higher selling prices to offset the extraordinary cost inflation. I think our total revenue was up 45%, which offset the higher variable costs, which I think were around 29%. A very good quarter.
The Russian-Ukrainian conflict, we have given some updates, but overall, it increased the volatility of costs, particularly energy, as you know, in Europe, and obviously created further volatility, as I said. We have been able to counter that, and we remain confident about our results moving forward. Across each of our three segments, demand is good, strong. You can see the respective volume increases, and that created the platform for the excellent results that you see. Off the back of that, we were able to substantially reduce debt. You can see we got it below two times, and I'll talk a little bit more about that on a future slide.
Debt is now $277 million below where it was a year ago. Moving to slide four, the EBITDA evolution, look, this is a great graph for us. You can see back in 2020 when we lost 50% of our sales, you know, clearly things were challenging. We were able to withstand that, and we've progressively improved our performance to the record levels that you see today. Slide five just highlights the key factors. You know, once again, higher costs, you can see it's across a number of the product segments and raw material categories.
In each of our product segments, we were able to improve on selling prices, and we've seen mix improvement, particularly in the packaging area, in the U.S. and in Europe, and in fact across all the packaging regions. Very pleased with that. Moving to slide six is a slide that we've added to the deck just to kind of put things in perspective, and we indexed it off of Q1 of 2020 financial year. You can see the kind of headwinds, challenges that we've been facing from a cost perspective. Energy, the biggest, you know, almost doubling, but it's across the board.
There's pulp, chemical, delivery, and as I said earlier, total variable costs, I think I said 29, but it's 28%. Moving to slide seven, the product contribution split, and once again, very pleased with the split. You know this is something that we've been working on over a period of time. When you see your three main segments contributing 1/3, 1/3, from where Sappi was, you know, a few years ago, that is a significant progress. We'll continue to evolve. Obviously, on the right, sales volumes for graphics is still slightly above 50%. But as we continue the journey on our Thrive25 strategy, I would expect that contribution proportion to decline as we reposition the business.
Slide eight has our net debt evolution and, you know, a sharp decline. You know, we've made it our priority to pay down debt in the short term. We're making tremendous progress in the current year. Obviously, you will have seen in the numbers that we put out, there's a working capital investment. But that's natural because, you know, when your raw material costs are going up close to 30% and your receivables, your selling prices are going up 45%, you have a larger investment in working capital. However, as we look at the rest of the financial year, we're gonna significantly pay down debt and, you know, move well below the 2x that you see reflected here.
Very pleased, and it's way ahead of where we could possibly have imagined it would be nine months ago. Alongside that, on page nine, our maturity profile of our debt. I've talked about this, it's unchanged from our prior quarter. But a lot of great work done during COVID and the challenging times, but we've cleared the runway. We have no major maturities until 2026. There is a securitization chunk number there in 2024, but that's something that we periodically refinance. No concerns. Gives us maximum flexibility as we pay down our debt levels that I highlighted on the previous slide. Slide 10, unchanged. Our CapEx, we committed to spending less than $400 million this year.
We're on track to do that, and we're currently going through the process of our budgeting for next year. So we can't give you a specific number at this stage, but you know, we will be, we've been maintaining our discipline as we generate these higher cash flows. Slide 11 just highlighting some of our costs or some of our challenges. Firstly, this is the shipping reliability on the left. It's actually a little bit better, but coming off a very low level. To be honest, it's traditionally not very good, the shipping reliability, but obviously recent times it's made it particularly more challenging. Things are getting a little better. That's the same on the right-hand side.
This is the container index pricing, and whilst it's still very, very high, it has come off a little in recent months. Slide 12 has the pulp. An interesting turnaround there because obviously we had the peaks last year, and then in China, they started to come off a little bit. We've seen a kinda second surge, and that's across all the pulp categories. Clearly, we benefit in dissolving pulp and BCTMP, but it pushes our costs up in the paper businesses. On slide 13, the gas price. We show this one because we are such a big gas user, natural gas user in Europe. Obviously unprecedented volatility.
Recently price has come back a little bit, but still at elevated levels and obviously that's a risk factor going forward. As you can see from our results, we've been able to successfully implement selling price increases to offset these higher costs. You know, we're confident that we can continue to do that. On slide 14, just, I don't intend running through this slide in too much detail. Just, it's on Russia, Ukraine, just to say that we did sell about 3% of our European volume into the region. We stopped doing that. We placed the volumes elsewhere. We had a little bit of raw material supply, but we secured alternative sources of those supplies, so it does not have a material impact on Sappi's business.
Clearly, it's obviously the indirect impact on things like energy prices. Moving to slide 16, which is the segments, and this is the pulp segment first. The demand continues to be good, and we've seen a bounce back of DP prices towards the end of the quarter. I'll, on a later slide, I'll talk about April. Demand is good, pricing is recovering. In this specific quarter, we obviously had some challenges, the fact that we were at a lower price because of the arrears pricing embedded in our contracts, and at the same time, as you know, costs going up like everywhere else.
We also had obviously some production challenges at Saiccor, which I'll talk about a little bit more in a future slide. We did have. Well, we were able to bring down our excess inventories, the backlog, and we did benefit a little bit in the pricing obviously because of that lag impact. Slide 17 is our packaging segment, and you know, we're very proud of this progress. It continues to set new records. You can see on the graph margins up, volumes up, demand is strong. There's a shortage of paper out there, and the investments that we've made in recent years are really starting to pay significant dividends for us. That's something that we obviously you know, we want to continue to grow the business going forward.
In graphics, slide 18, EBITDA margin of 17%. It's, I think it's remarkable. It just shows you the benefits of tight markets, a lot of great work done by our people to implement the selling prices to offset the higher costs. You know, you see the benefits there. Our machines are full, margins good, and volumes are increasing. You know, it's fair to say it's not gonna last forever, but things are very strong, and we must make the most of the opportunity. Slide 19, Europe. You know, as you know, during COVID, we had some very challenging times and obviously costs came under tremendous pressure, but a huge turnaround.
Once again, I know I sound like I'm repeating myself, but the result of a lot of hard work, a lot of great work implementing the kind of increases that we've had to put through to navigate the challenges of the higher costs. We've been successful. The markets are tight. Volumes, as I said earlier, up significantly. Our machines are full, and we are feeling bullish about the short-term prospects. Slide 20, our North American business. I've been reporting and talking about record profitability for a couple of quarters now, and this was just another great quarter. I'm very pleased that it's our strategy is working effectively. It's a broad-based success in that region.
The investments that we made at Somerset in the past have really paid off for us. The markets are tight, and once again, shortage of paper, strong demand, and we are once again bullish about the short-term prospects. In South Africa, I referred to earlier the higher costs coming through, like all the other regions. Obviously, the pulp and dissolving pulp, specifically, slightly different because it's contractual pricing, so you had the combination of higher costs and a lower lagged selling price, which impacted profitability. Having said that, I as I said earlier, demand is strong and prices are rising. We did have the production challenges at Saiccor. If we took kind of summarize the production challenges, two broad buckets.
About 60% is external factors. Eskom had a major outage at the mill during the quarter, and that unfortunately impacted on production. We had some raw material supplies from a key supplier that once again also took away some volumes. The remaining 40% is what we would regard internal matters. You know, we had some machine or equipment failures, but you know, we've addressed those and you know, we continue to stabilize the mill. Obviously, we completed the Saiccor expansion earlier in the year. Pleased to say equipment performing in line with expectations.
Obviously, you know, we're feeling good about the production and then the floods came, but well, I'll talk about that on another slide. The paper. Just like everywhere else, the paper category is very strong, a lot of great work being done. You know, that's from the packaging. It may surprise you to hear that even categories like newsprint are extremely tight and doing very, very well. Broad-based success on the paper categories across all of our regions. Moving to our strategy, our four pillars. It's quite a busy slide, so I'm only gonna highlight a couple of factors. The first bucket is our driving operational excellence.
gets ever more important when, you know, when selling prices are so good, you want all the volumes that you can get. It's a focus on efficiencies, productivity, and obviously looking for cost opportunities in these volatile times. Although the overall costs have gone up, we've been able, on the procurement side, to realize some market savings against market moves. Our safety stats continue to improve and, you know, we're making very good progress. In terms of enhancing trust, we're almost complete getting our science-based targets verified, and we'll be in a position soon to announce those publicly, but we are on track to achieve the targets that we've set ourselves.
The forestry certification gives Sappi a strategic advantage, particularly for our dissolving pulp. Our B-BBEE certification, we're a level one category, which is obviously the best you can get, and we're very proud of the work that we've done within Sappi. In terms of growing our business, obviously we've made investments in recent years. You're seeing all the benefits of that coming through in the packaging and specialties. We've got a couple of smaller investments, some of it embedded in the $395 million CapEx that you've had for the current year. These are not big numbers, but they're important further steps for us. We're enhancing our label capabilities at the Graaff-Reinet mill.
We launched that earlier in the year, and it's ramping up ahead of our expectations, and we're enhancing our capabilities, as I say. On functional papers, which is packaging, we're almost complete, actually, putting in a new coater at Alfeld mill, and we do believe that will enable us to stay ahead of the competition in a very important and growing space. We're obviously gonna have the additional DP volumes going ahead. Obviously the floods hopefully now behind us, and we can ramp up from there. In terms of our financial health, I've talked about it. Cash generation extremely strong in this year on the back of the high profits.
We've repeatedly said that our immediate priority is to pay down debt. We're doing that. We're gonna significantly decrease the debt levels in the second half of the year. Sorry, we turn to the outlook statement, page 24. You know, first and foremost, you can hear from my comments that we are bullish about the prospects for the quarter ahead and the rest of the financial year. Each of our segments, demand is strong. Firstly on pulp, the DP price has hit 10-year highs. This morning, I think it went to 1,110. So significant momentum behind the pricing. You'll obviously only start to see the benefits of that once we get to Q4.
We do have our shutdowns. We have to do our shutdowns once a year and, you know, we typically schedule these in Q3. And the combined impact of that is $50 million, and I'll refer to that a little bit later. Packaging, I've mentioned many times throughout the presentation, in a good place, we continue to grow. Graphics, tight markets, we are successfully implementing selling price increases. There is a shortage of paper, and we are bullish about the short term. Obviously, the costs is a risk factor, but I think we've demonstrated our capabilities to combat those headwinds. You know, we'll continue to look for opportunities there. Unfortunately, the floods occurred in KwaZulu-Natal, South Africa in April.
No major damage to the actual plants themselves, but we had to stop production. There won't be any material impact on EBITDA itself because obviously we're insured. The net loss we take below the line as an extra or a special item. At the moment, we're busy with the cleanup at the warehouse and, you know, hopefully once that's done, the insurance guys can finish their work, and we can get the payout. Taking all of that into account, the favorable operating environment, our underlying EBITDA for the third quarter should be consistent with the second quarter, subject obviously to the impact of the maintenance shut. I've been asked a couple of times, what does that actually mean?
Well, we made $337.5 million impact from the shutdowns. The starting point is $287 million. But we are bullish about the prospects. I guess what's quite remarkable is, those of you who've followed Sappi for many years will know that Q3 is seasonally our lowest quarter. You know, the fact that we're starting it and estimating for you all a number of $287 million as a starting point should give you lots of confidence. That's operator, that's me finished, and I'm gonna hand it to you now for questions.
Thank you very much, sir. Ladies and gentlemen, we will now be conducting a question- and- answer session. If you'd like to ask a question, please press star and then one on your telephone keypad or the keypad on your screen. A confirmation tone will indicate that your line is in the question queue. You may press star two to exit the question queue. Just a reminder, if you'd like to ask a question, you're welcome to press star and then one. The first question comes from Brian Morgan of RMB Morgan Stanley.
Hi, guys. Thanks very much and superb set of results. Very good. Just a question on Saiccor right now. What's the logistics actually looking like? You know, is there rail operations up to the port at the moment? Are you trucking stuff up to the port? How is it actually working?
Yeah, obviously, I'll let Alex expand further. You know, obviously at the moment, the cleanup at the warehouse is occurring. The mill has recommenced for production. Obviously, we do have the shut that we referred to earlier. The port is, you know, slowly picking up. I'll let Alex expand further.
Thanks, Steve. Yes, we are able to rail volumes into the port. We have some backup warehouses as well. We don't get quite the volumes that we had before, so we're also using truck backup as well. That's really improving as we speak day by day. You know, not really a concern as we go forward.
Okay, good. If I may just ask, 44,000 tons of DWP inventory at the end of March, and then you lost 30,000 tons of dissolving pulp in the floods. Am I right in thinking that inventory level should be down to 14,000?
Well, that was the excess inventory, Brian.
Yeah.
-the 44, right? It's fair to say that, yeah, a big chunk of the excess inventory was what was damaged in the floods. You know, obviously we you know, we declared force majeure on those volumes.
Effectively able to book the margin into the income statement of the 30,000 tons now that you've lost in this quarter, right?
Effectively, yes. Yeah, because it's insured at the selling price.
Okay. Okay, very good. Can I ask, on graphic paper, it's just unbelievable sort of numbers there. To what extent do you think UPM restarting, halfway through April is going to get that market back into balance?
Look, Brian, you know we can't talk specifically about individual competitors. What I would say, I'll pass to Marco to elaborate further, what we will say, and you can hear from my comments earlier, that we are positive about the short-term outlook. Yeah, that may be happening, but markets are still very tight. Marco?
Yeah, please. You're right. I think the tight markets that will continue for a while. There's still a logistics backup. Our order book is very strong and would allow certainly some headwinds if that's coming through. It will not necessarily hurt our position. We've got a very strong safety margin there, and markets, as we believe for the shorter medium term, will stay very tight.
Yeah, Brian, we effectively put a date, not a deadline. We put a date on our orders because the order book was just so big. We actually put a 5-month deadline on it.
Price is realized in that order book is negotiated now or indexed at 5 in 5 months' time?
No, no. It depends obviously on the price, the prices at the time.
Okay. That's it from me. Thank you.
Thank you. The next question comes from James Twyman of Prescient Securities.
Yes, thank you very much. Yes, amazing quarter. Could I just ask two questions? Firstly, could you talk around the hedging you've got in place for gas in Europe, for this year and in the future years, maybe in the U.S. as well, but I think mainly in Europe. Secondly, you mentioned your net debt to EBITDA is at 2x, and I'm sure it's probably gonna come down well below 1.5 by year-end. Just interested to know whether you plan to consider restarting a dividend, given that the debt should be down to a very comfortable level.
Okay. Firstly, on hedging, I'll let Mike talk about the U.S., a little bit now, but in terms of Europe, which is obviously where most of our exposure is, we have hedged 65% of the current year, and we're about 50% of our 2023 requirements. That's gonna put us in a pretty strong position. Mike, do you just wanna explain a little bit about how it works in the U.S.?
Yes. Thanks, Steve. James, typically, we hedge in North America, you know, one year out through the summertime. We've got small amounts hedged right now at this time, but gas prices are higher than typical, as we sit. We'll continue to look for those opportunities, you know, through the coming months. At this time, we don't have large positions hedged out in multiple years.
Obviously, James, you know, our biggest exposure, as I say, is in Europe. Our pulp integration and our energy integration in the U.S. is in a stronger place, so we're less exposed. Another question, James?
The dividend.
Oh, on the dividend.
Yeah, just on the dividend.
I thought you'd forgotten. Look, our immediate priority is to pay down debt, and you could hear our commitment to doing that. I think you know, we're obviously gonna be significantly less at the end of the year. You know, we need to assess at the end of the year and with our board discuss our options and make a decision at that point in time. Certainly nothing has been decided as of yet.
Of course. Thank you.
Thank you. The next question comes from Sean Ungerer of Chronux Research.
Good afternoon, Steve and Glen. Thanks for the time. Just a couple of questions. Just in terms of, I guess if we look at the net working capital, we're presuming inflow in H2, how we should think about that, sort of given the current environment that we're in, that would be pretty useful. I think let's first start with that, and I'll move on to the rest. Thanks.
Hi, Sean. It's Glen here. We do expect an inflow on the net working capital over the next six months. For the year, we expect it to be a net outflow, though, just given where the operations are at the moment relative to the beginning of the year.
Okay. That's great. Just going back to the European order graphic paper order books, I guess. Like if it's been capped at five months, then I think is it a pretty fair assumption to say that it's looking, you know, pretty decent, I guess, for the next couple of months? I mean, outside of that, I mean, is there any other sort of visibility or insights that you can provide us? And also linked to that, I think historically 25% of the European business was exported. Has there been any sort of interesting trends or reversals there? Thanks.
Yeah. It's actually amazing. Because demand has been so strong within Europe and across the globe, and that's why we cut the order book back. We've actually had to pull back on allocations for our export markets, South America, Australia, but everywhere is strong. Actually the percentage actually has come down a little bit. It's just, you know, it's just below 25%. You know, the orders are out there and those same pricing issues or the same pricing dynamics that I've repeatedly been talking about on the call are equally at play in all those export markets.
Thanks, Steve. Then just in terms of the packaging and specialties, pricing mechanism or environments in Europe, sort of based on the commentary and the results, it seems like there's still quite a bit to go there, which I think obviously in my view at least provides more upside for the European business. Is that a fair assessment?
Yes. Yes, it is. We, as you know, we have certain contractual business. I've talked about it in previous calls. You know, we've been playing catch up and then as you get to the end of those periods, you know, you implement new selling price increases, costs have been going up. I think there's scope for further margin improvement in the European packaging business. Yes.
Okay, great. Just last one, Steve. If $287 million is the sort of starting point for Q3, I guess, I don't know if this is a fair or unfair question, but where could the potential additional upside come from? I'm assuming obviously the one lever is more aggressive pricing filtering through, but are there any sort of other issues or things at stake we should think about? Thanks.
Look, what I would say, obviously, DP prices are going up. Not that we don't have a lot of spot business in this quarter, but certainly that will help. I think the other thing is, you know, things like the gas prices, and the other costs. You know, we clearly anticipated a certain level of pricing or costs, and they've come off a little bit, let's say that. You saw it on a couple of the graphs. Look, that's not to say that there's not risk, and you know how volatile they can be. Clearly when we look forward and we implement our selling prices, we implement level of cost.
You know, if things were to stabilize a little bit, that could be an opportunity.
Awesome. Thanks very much, guys. Thanks.
Thank you. Ladies and gentlemen, just a reminder, if you'd like to ask a question, you're welcome to press star and then one to place yourself in the question queue. The next question comes from Wade Napier of Avior Capital Markets.
Hi, guys. Thanks very much for the time this afternoon. Just a couple questions from me. Just on the order books, I know you've got customers on allocation with European business. You've mentioned five months out. What is the latest that a customer can cancel an order? I think I recall something along the lines, they can cancel an order about three weeks before it's due for delivery. Can you just sort of correct me on that number?
Okay.
Sorry?
I'm sorry, I thought you wanted just the answer, but have you got a second question?
Yeah, I've got a second question. Just on follow-up from James' previous question on energy hedging. Have you sort of always hedged energy, or is that a more recent sort of thing that you've done in the European business, given gas prices? I'm just wondering if this is more recent. Do you still have sort of higher energy prices coming through the business in the second half of the year?
Look, we've always hedged a proportion of it. The levels of 65% that we're currently seeing are higher than normal, and obviously, you know, that's a function of what was anticipated to be the volatility. As it became clear that there was, you know, when back in November, December, when the risks were on the horizon, we decided to up it. Typically, and I'm looking at Marco here, it's about 50% we would hedge in a current year. You can hear we're, you know, up at 65%, which is more than normal.
Yes, a little bit more. On the, just on the order books and when a customer can potentially cancel.
Yeah. Wait, that is a bit similar to what Steve just explained about the hedging. We've taken into account the current market circumstances which are tight, and therefore, we wanna manage our order book as well a little bit tighter than what we do usually. We're less flexible, obviously. We don't wanna have any surprises in our order book. So we would have a bit less flexibility in terms of order cancellation, and it would be 3-4 weeks before production. Where usually, if the market is less tight, you would give some leniency there, that is disappearing now.
You know, where we're just to come back, you know, it's not that the orders are not there beyond that period. The book is extremely tight and obviously, you know, I talked about export markets. We've had to cut back on allocations and while theoretically there's a risk that customers could cancel up to three weeks before, we're certainly seeing nothing on the horizon that would tell us that's gonna happen.
Yeah. Yeah, that's comforting. Thanks, Steve. It's just obviously, as you know, there are macro concerns heading into the second half of the year, so I was just sort of sense checking that. Maybe a final question from my side, just on the dissolving wood pulp markets and the sort of downstream fiber markets. We've obviously sort of seen this sort of second wind in pricing sort of happen over the last sort of 6-8 weeks. I mean, what do you think is driving this, particularly with sort of China sort of being in lockdown, or what is sort of supporting these sort of, you know, very positive price increases?
Yeah. Look, I'll let Mohamed elaborate further. The main drivers, I mean, first and foremost on the supply side, you've seen all pulp move upwards on the back of supply constraints, and the logistical challenges help that. On the demand side, you're still seeing kind of record levels of cotton. You're seeing record or very high polyester prices. The viscose prices had not followed up to the same extent as the alternative fiber. You've seen a big surge in viscose prices in recent weeks. In spite of the challenges in China that you referred to, you're seeing momentum from both sides, which is underpinning the positive prices.
Obviously more recently, obviously the fact that the flood in KwaZulu-Natal, Sappi is a key supplier, so that would've had a benefit as well to DP prices. Maybe Mohammed wants to elaborate further.
Yeah. I'll just add that there's significant cost pressures that I think are supportive of higher VSF prices from, you know, the dissolving wood pulp to chemicals to energy as well in China. We are also seeing a significant tightening of supplies of VSF. The one positive that has come out of the COVID issues is there's been some major challenges in terms of transportation from one province to the next, and that's made a lot of the buyers of viscose staple fiber a little bit more eager to stock up. At the same time that is happening, what we have seen is that the VSF producers initially early in the quarter cut back on their operating rates.
They've now started lifting their operating rates again, but as they cut back, they've dropped their stock holding of viscose to very, very low levels. Then the last point I would add, what we are also seeing is some improvement now on the exporting of viscose staple fiber. Clearly, the weaker RMB is helping, but also container availability has started to ease and that's made it a little bit easier for the guys to export. That's helped their demand situation.
Great. Thanks, Mohamed. I'll hand over. Thanks, guys.
Thank you. The next question comes from Brent Madel of Absa CIB.
Yes. Hi, good afternoon. Just a single question from me, if I may. I wonder if you could give us a little bit of color just with regards to what the backlog at the Durban port is at the moment. You discussed earlier on just the movements, you know, of rail, and using a bit of road in order to get the products to the port. Can you just give us an idea of what the backlog is there? Are you getting? Is stuff currently being loaded onto ships and being exported, or is there a delay in terms of fulfilling your deliveries?
Yeah. This is Alex. Really, the delay over December was about 7-10 days, and we've actually seen that come down to about 3-4 days. There's been a slight worsening now, but we're obviously also taking action in terms of getting alternative vessels, break bulk vessels in place and that does spread the demand on capacity. We've actually not seen a significant impact on backlogs. Obviously, of course, the floods, the recommencement of our deliveries, I think the first shipments, Mohamed, is this week, yeah?
Yeah.
Yeah. The first ship, if that's what you're asking, our first delivery.
Yes.
is going out this week. Yes.
Okay. Thank you very much. Appreciate that.
Thank you. Ladies and gentlemen, just a final reminder, if you'd like to ask a question, you're welcome to press star and then one. The next question comes from Riccardo Ottaviani of Ares Management.
Hi. Hi there. Well, congratulations on the strong print. Just a quick question from a debt perspective, capital structure. I think you understand you're guiding towards leverage in the second half of the year, sub 1.5x. Just trying to get a sense again in terms of future leverage target if the below 2x is still appropriate, and whether you do have at this stage any rating ambition. Secondly, I think you mentioned paying down debt.
Just wondering whether you mean using some of the liquidity to effectively repay debt and/or or even buy back bonds in the secondary market in light of you know obviously the more opportunistic levels of trading as we speak. Thank you.
Yeah, thanks. In terms of, yeah, as you know, we had set that longer term ceiling of 2x leverage. I think there's a tremendous opportunity in the short term to pay down, you know, as we've illustrated. We're gonna take advantage of this opportunity, and in absolute terms, we are gonna pay down our debt further. You know, I don't think I said 1.5, but you know, just where the numbers are going, you know, hopefully, you know, hopefully it can be even less than that, come the end of the year.
You know, we recognize that we are a cyclical business, and we've got strong cash flows at the moment, and we must take advantage of that opportunity to pay down our absolute levels of debt. That's our immediate priority. In terms of utilizing the cash, you can imagine, you know, it's too early to consider that. We obviously want to bank the strong cash flows over the next few months. You know, we'll assess where we're at as we move into the new financial year.
Riccardo, does that conclude your questions?
Thank you.
Yeah.
That's good. Thank you very much.
Thank you, sir. Ladies and gentlemen, that does conclude our question- and- answer session. I will now hand over back to Mr. Binnie for closing remarks.
Thanks, operator. Thanks everybody for joining us on the call today, and we look forward to discussing our Q3 results in three months' time. Thank you very much. Bye-bye.