Thank you. Good day, everybody. Thanks for joining us on the call today. I'm going to start the call by just going over our Q2 numbers. And then after that, we'll talk about the whole COVID-nineteen thing as as I'm sure that's the area where you want to focus on mostly.
But just, as I said, to start with the numbers themselves, EBITDA for the quarter, and I get sorry, I'll call out page numbers as I go, page 3. The EBITDA for the quarter was USD 131,000,000, down 30% year on year, and that's pretty much in line with the guidance that we gave at the end of the last quarter, net debt to EBITDA as calculated by our existing debt covenants was 3.1 times. The big story of the quarter obviously is that, lower dissolving pulp prices, continued. And that's the reason for the the 30% decline that you saw year on year. The prices have been at historical lows.
And I know in the previous results call, we talked about an expectation that things were going to start to go up where but obviously with the outbreak of the coronavirus, in the Far East, that that put a stop to that. And then we the lockdowns began obviously firstly in China and then spread from there. And We didn't get that upward momentum that we had expected. Leaving that aside for a second, on the paper side of business, we actually had a pretty good quarter. The Packaging segment, and you know that this is an area where we've been investing progressively over the last few years, it really is starting to reap significant rewards and our EBITDA for the quarter, almost doubled, up to USD 50,000,000.
It's become a substantial business for us and will continue to grow as we move forward. And then on graphics, market declines that we've been seeing in the quarter, we're in the high single digits. We were able to gain substantial market share and in fact, our profitability for graphic paper was actually, flat year on year, which I think is a pretty good performance. And that was even though we began to see, an impact on demand as we got towards the end of March was the, as the lockdowns began to gain traction. The mechanic integration was on track.
The external cells there, are included in the dissolving pulp segment. Obviously, I want to stress to you that the liquid on it is strong. We have cash on hand of $268,000,000, and undrawn committed RCS facilities of 642. Turning to Page 4, the earnings bridge, and the big story is, as I highlighted earlier, is the decline in pricing. And that's almost entirely related to dissolving pulp.
We were able to substantial costs in the business. Obviously, pulp prices were low across the board, so that lowered our costs for, on the paper side, the raw material costs on the paper side, then that the, the biggest part of the variable costs positive that you're seeing there. And we were able to take some fixed costs as well. Moving to Slide 5. This is the product contributions, but it's on an LTM basis.
So obviously, dissolving pulp is progressively getting less because of the lower pricing. I'm very pleased to see the contribution now from Packaging. We did talk about it in the past getting to 25% of our business. And it's done that and it's gone beyond that, and it will continue to grow. Obviously, dissolving pulp in the short term will, will be a lower contribution.
Turning to Slide 6, And this is a graph that shows the volumes and margins, and think it underscores what I was saying earlier. Graphic paper performing pretty well. And a great job done by the respective teams, to gain the kind of market shares that we've been doing. And the margins actually pretty good in the high single digits. On the packaging side, on the top right, you can see as we've added more volumes and ramped up following the conversions, the margins continue to be good.
Obviously, higher than maybe the long term trend because of lower pulp prices, but I'm very happy with the the level, that we've achieved there and the growth that we're achieving. Unfortunately, and again, just consistent with what I've said earlier, the bottom graph shows you, how dissolving pulp margins have come under severe pressure. Turning to Slide 7. It's our debt maturity profile. And, the bulk of our our debt is long term and, doesn't pose any liquidity risk.
The shorter term stuff that we have. The yellow block in 2020 is predominantly some funding we have in South Africa. We did have a bond of about ZAR 750,000,000 that matured in April, we've put in a bridge facility for that because we, as you'll appreciate, the public it's where it's not the right time to go. So we've put in place a 12 month bridge facility there. And when time is right, we'll go back to the markets.
The blue block you're seeing is a short term facility that we have, in Europe, and that just gets rolled, on an ongoing basis, and it's been like that for a long period of time. On Slide 8 is our CapEx and we've, we've been very carefully looking at our CapEx in light of the short term challenges posed by the virus. And we've been able to reduce our CapEx estimates for this year by, to about $370,000,000. It's about an $80,000,000 drop from the previous guidance we gave you. We've been able to defer, some CapEx.
The biggest area is the Saiccor dissolving pulp expansion. Some of that happened naturally because of the lockdowns in South Africa, and we are not able to continue, construction at this stage at the levels of lockdown we're in. And then other CapEx, what was regarded as non essential we've been able to push out. And we'll continue to focus on this area. The one thing I do want to point out is that you can see the blue what we call maintenance CapEx, for 2020 is $160,000,000.
We have pushed out a couple of the shots to early in the new financial year, and that's why it will it looks lower. But when you get to the 21 year, the maintenance CapEx will obviously have those those shuts in. So the blue bar will in 2021, we'll jump back up with to somewhere between $150,000,000 $200,000,000. Turning then to the segments and Firstly, on Page 10, the, is Europe. And under the circumstances, a very good quarter for Europe.
EBITDA up 5%, we were able to, gain substantial market share in coated woodfree, to offset the weak markets that we experienced. It's also important to point out that we did have the, the finished strike industry strike, and that impacted on cut Mimi. So our volumes for coated mechanical paper, which obviously cut Mimi makes were impacted. So despite all of that, we were able to, you know, able to grow. We were because of the market share gains, we we had actually less commercial downtime than prior year.
Very pleased with the progress on packaging and specialties. And we'll talk a little bit more about the coronavirus impact, but what we saw in the quarter, January February for Europe was, was very good. And then in that last 2 week period of March. That's when, obviously, some countries began lockdowns and we started see cancellations coming through. So it did impact on profitability for the region a little bit at the end of the quarter.
We've been able to achieve significant cost savings. Obviously, pulp prices remain pretty low and chemical costs have also been coming down as well as energy. Then on to Slide 11, North America, and a similar story, substantial market share gains in coated woodfree. EBITDA was flat year on year, but it's important to point out takes the dissolving pulp in there. And obviously, the impact from the lower dissolving pulp price So it tells you that the paper side of the business did pretty well.
We were able to grow packaging volumes, as we continued to ramp up, and then that gave us about 68% actually with the volume increase for, packaging. So very pleased with the progress. Graphic paper was up 10% as well. So you can see they did pretty well at And if it hadn't been for the dissolving pulp, the earnings would have been up, substantially on a year ago. And similarly to Europe, lower cost and we began to see the impact of COVID-nineteen at the end of March.
Then to Page 12, South Africa And obviously, South Africa has the biggest exposure to the dissolving pulp. And with price is down $2.40 a tonne year on year. That is going to have a substantial impact on on profitability for the region. Outside of that, the containerboard it was a slow start to the year, but we have seen momentum pick up, and they had a better second quarter, and we will continue. We anticipate further improvement in the second half of the year because of the strong demand for, particularly for citrus fruits.
Export side of South Africa. The weak domestic economy didn't help in some of our other smaller categories, and they've been further impacted by, obviously, coronavirus as well. And we'll talk We'll talk a bit more about that later. And like all the regions, good work done on costs, and, variable costs were lower here. Then Turning to Slide 13.
We've obviously shortened the presentation focused on the historical numbers because we felt that it was appropriate to talk about the virus and its impact. I mean, 1st and foremost, the safety of our people, comes first and we've implemented processes and procedures to protect our staff, ensuring that we've got screening testing, social distancing processes in place. We've also altered our operational, our operations to ensure that we can have continuity, changing shift systems, rotational teams, health, strict health protocols, all the things that you, that you would expect. We've been fortunate in some ways, although a lot of great work done across the world to ensure that we were able to continue producing and be declared, essential businesses in all the countries in which we operate. Fantastic engagement with the unions and local communities, and they've been aligned to what we have what we've been striving to achieve.
The operations themselves, we had we were able to continue production other than the Condino Mill in Italy, which was down for a, it was actually 10 days down at the end of March. But subsequently, through amazing work they were able to get back up, key now obviously is that we don't want to be sitting with excess inventories. We We want to reduce our costs, and obviously manage cash and liquidity. We are taking production downtime where it makes sense, to match demand. And, and obviously we do avail ourselves of temporary, unemployment support in, in Europe, in the U.
S, where we can do so. The moving to Slide 14, cash management is everything in a crisis like this. And we have been proactive. We put in place, a covenant waiver, and we did announce the market. We were very fortunate.
We moved early. We anticipated the challenges that were coming. We've got great ships with our banks and they were very supportive and probably ahead of the curve against many organizations, we were able to put in place to waiver through to March 21. So, that gives us a degree of flexibility. I already mentioned that we put in a place of bridge financing for an SE bond that was maturing.
We We reviewed the CapEx commitments and strong strong focus on procurements, savings. We've already given an indication of $64,000,000 of savings earlier in the financial year. Now we're wrapping that to $105,000,000 and we'll continue to look for opportunities. And then similarly, on the fixed costs side, looking to take out fixed costs. And in April, we were able to take out at least 10% of fixed costs.
So and these focuses and projects are ongoing. Slide 15, as you will appreciate, the focus is very short term. It's on cash management, it's on liquidity, working capital, we don't want to be sitting with excess inventories, and that's why we will take production downtime and obviously, avail ourselves to temporary unemployment support that we can get. Receivables, interestingly, so far, the over dues is constant with, prior quarters. And I would extend that into April as well.
I, clearly, there's more risk and it's something that we are managing very, very closely. I've talked about the government assistance. And as I said, very short term focus. We've got detailed processes in place to monitor our cash bottom up forecasting, to ensure that we can manage our way through the challenges over the next few months. Turning to Slide 16, the markets themselves, Firstly, graphic paper, and this won't be surprises to you.
But obviously, as the forest spread and lockdowns occurred. The spend on advertising and marketing, dropped off substantially we started to see the impact at the end of, end of March And obviously, it carried into April as well. And we'll talk about it later, but April was down 27% in this segment. Just for information sake, and clearly, this is an unprecedented time, but 2008, 2009 was a challenge as well. We had the global financial crisis.
And at that time, we also saw 30% declines, at the height of the crisis. Incidentally, the following year, we were able to recover about 2 thirds of that decline. So whilst we think the short term challenges will be there, we do anticipate that in time in the future, there will be there will be a recovery. We have lower input costs. A lot of our raw material costs, prices have come down, so that help a little bit to support margins, sending prices for graphic paper down a little bit, but holding up reasonably well.
And interestingly, the operating rates are, well, obviously, prior to the big shut that we're taking now, operating rates were pretty good. Then on packaging and specialities, anything to do with food and hygiene is doing very well, as you would expect. Anything else exposed to consumer goods, which perhaps the retailers are closed or is related to clothing or luxury goods under more pressure. But overall, the segment is doing well and continues to ramp up. The lower pulp prices and lower chemical costs will help us as well.
The Slide 17 dissolving pulp Obviously, lockdowns has had a tremendous impact on demand for clothing, which is an indirect impact on, obviously, on dissolving pulp. And we've got a couple of slides to show you, some of the numbers. In April, we are, volumes were about 35% lower than than we had expected prior to the crisis status. Exchange rates are helping us as the rent has weakened. And, obviously, there are a number of pliers that are taking shuts.
So that will help with the balance of the market a little bit. BCTMP incidentally is, prices are actually 30 point up. So that will help them attack external sales. Slide 18, we included just as a reference point, but this is UT U. S.
Retail sales, in March, selected data we have anyway. And you can see that clothing is down 50%. That, is obviously worse than the 35% we experienced, in April for dissolving pulp. No, that tells you that, we're probably not at the bottom of the crisis, and that won't be a surprise to the lockdowns are still ongoing. So from a dissolving pulp perspective, the rest of the quarter is probably going to be worse.
And if the lockdowns get extended, obviously then there's a risk into Q4. But at some stage, we would expect recoveries. And hopefully, that will begin to happen as we move into the new financial year. Slide 19, just as textile orders across a number of geographies and it just tells a similar story to what we're saying. You can see it's across the world.
And, it's consistent with what I was saying earlier that, demand in May June is going to be under significant pressure for dissolving pulp. The turning to the strategy, we just we've got less slides on this. But obviously, we can't lose sight of the long term as we face the short term challenges And, slide 21, just talks about a few things that we continue to work on. Obviously, costs is everything and, ensuring that we are competitive and that we can minimize the impact of the virus and the lockdowns and the downtime that we're having to take. We'll continue to, manage our, capacity in the graphic paper space.
The, stocks that PM2, we've talked about this and the potential closure of that in the next in the near future. That's currently operating, at at about 80% less than previously. And we've announced a temporary shot on the Lanaken PM 7. Again, just so that it minimizes our and reduces our inventory exposure. We will focus on the balance sheet, and obviously, ensure, that we have something in place beyond the March 21 period to give us the flexibility as we move forward.
And a big push on growing our packaging and specialty we need to continue those ramp ups and take advantage of the opportunities that we have out there. So turning to the outlook, Obviously, we've withdrawn guidance, earnings guidance. We announced that previously due to the uncertainty of COVID-nineteen. But, obviously, we know that dissolving pulp and graphic paper demand will be under pressure because of the, the crisis, a strong focus on cash flow and liquidity. Working capital, CapEx, all the things that I talked about.
We will, look to ramp up further on packaging. I already said that, we're looking at some encouraging numbers coming out of South Africa for citrus exports. So that's going to boost the containerboard sales out of South Africa. The Saiccor expansion project, we don't know. We don't know when that will start up again.
Obviously, the government's lockdown rules will need to be eased further. But more than likely, the project now will only be completed in the second half of the financial year twenty 21. And the last bullet, obviously, we talked about a maintenance shut sailing some cash flow there by pushing them out a little bit because we don't need them at this stage. And we would expect CapEx in the second half of the year to go about SEK 200,000,000. So operator, that's the presentation.
I'm going to hand back to you now
you.
You.
You. The first question comes from James Twyman of Prischend.
Yes. Thank you very much. I've got two questions. First one was, can you give any idea about what sort of level of of support you're expecting to get, which I assume is mostly in Europe and North America, probably not much in South Africa, just to give some idea of what sort of reduction in the pitch you're going to get from all the downtime? And then secondly, on the Chinese market, what are you seeing in terms of closures or or, increased downtime in the viscose and dissolving pulp markets?
I mean, there should be a lot of pain going on there, which should help the market in time. I mean, I'm selling the dissolving pulp production errors can't understand What are you seeing there, please? Those are my two questions.
Yes. The government's book support, it's difficult give an exact number, as you'll appreciate, there are complex roof in different countries, particularly in Europe, but, I'd like to think it would be much as $10,000,000 a quarter. But that's not, as I say, we're still working through that.
Is that in Europe or total, would you say?
Yes, I don't want to give an exact number, James. You'll appreciate that. I'd like say it would be a minimum of 10 across
both.
I guess, that's not in South Africa. It's the Europe and the U. S. A minimum of 10, but I don't want to give you I don't want to give an exact number and then disappoint you. On the second question, I'll let Mohammed elaborate further.
What I would say is that firstly on the supply side of dissolving pulp, the very light little activity on the, on the Chinese side. The viscos side, obviously, after their lockdown, was finished, we began to see a ramp up there and things have progressively picked up over the last few weeks. Mohammed, I don't know if you want to elaborate a little bit further there.
Thank you, Steve. Yes, just on the dissolving pulp side, all the information we have through our various sources certainly in China indicate that there's virtually no DP production that's happening at the moment. Facilities have either shut or producing other grades of product from bleached to paper pulp to unbleached kraft pop. On with regard to dissolving pulp from outside of China, they also we have seen quite a few, announcements. There's been one public announcement that came out from the U.
S. Where a company has indicated that they are going to be taking or have taken, shut down for about 90 days. We have also picked up information that a producer who has already converted to DP has delayed actual production of dissolving pulp through to, sometimes in June. And also in Europe, there has been public announcement around one particular company where they had also started a co determination process on the possible temporary layoffs and also not producing dissolving pulp on the line that they have recently converted. So lots of dissolving pulp capacity is currently out of production.
And Mohammed, on the Viscos side, just chat about that in China?
On the Viscos side, what we have seen is prices are at historical low levels and that is now at a point where it is causing a lot paying for viscose producers. So we have started to see also production coming out of the viscose site in in China based on the CCF, which is a company that publishes a lot of information on the fibers market in China. The latest operating rates that they reflect is around 65%. That is down from early January when it was around 80%. So there's also a lot of capacity coming out at the moment on the Visco side.
But having said that, what we are seeing in China because of the relaxation of some of the restrictions and things getting a lot better, there's a lot more activity just in terms of overall improvement, people going back to work, shopping malls, opening up retail stores, opening up there is already quite a lot of positive activity that's now happening in China.
Okay. Thanks James.
Thank you very much.
From Brian Morgan of R. P. Morgan Stanley.
Hi, guys. Thanks very much. So if I could just ask a question around DWP and maybe the viscuit supply chain. We've obviously got this global production in textile demand. And that's obviously shifting supply chains around inventory, inventory cycles are moving around
I'm just trying to get
a sense of how quick a recovery might be. It's just going to be sort of a flatter recovery going to be more BHAP recovery. And I'm thinking specifically, as we go into the 3rd calendar quarter, where is inventory sitting? Are the inventory sitting at a clothing retailer level? Are they sitting at at manufacturer level.
At where do you think those inventories are sitting? How might that translate into ultimate DWP demand for the back end of this year, especially thinking about things like taxis, reality, etcetera.
Yes. Look, it's clear based on what we have, the data we have it's right across the supply chain where inventory levels are high as you would expect. So that is going to be a further risk factor as we look at the timing of the recovery And that's obviously why I said earlier that the well, firstly, this quarter is going to be tough and I think Q4 is going to be tough as well. It's all going to depend on the easing of these lockdowns. And as the the shops begin to open once again.
And then you start to get that for the product and flowing through the supply chain. Obviously, you have seasonality involved. And a lot of the, product is summer season for the Northern Hemisphere. And as you move into the winter season in, in the Northern Hemisphere that you are going to have to pull for for that kind of product coming through. The way we are thinking about it, Brian, is that assuming the lockdowns end or progressively end in the next month or 2, obviously, this quarter, next quarter would be under pressure.
And it's probably going to spread into the 1st 2 quarters as the next financial year. There is so much uncertainty. Yes, of
course. And in terms of sort of silicon containerboard, are there roughly 500,000 tons of containerboard how much would you say goes into Citrus and how much is the normal economy? Brian with It's not all citrus. It's obviously other fruit exports as well, but, it's at least to the export market.
A third that goes into the local economy. But obviously, we are, looking at opportunities and there's actually strong demand for sporting containerboard rather than selling it to the local converters.
Okay. So the next quarter might not be that bad from a volume perspective?
No, we don't think it will be. We actually, the citrus industry is talking about a 13% increase year on year in terms of crop.
Okay, got you. Cool. Thank you. And then finally, Steve, maybe just a question on capital allocation. I know you're managing a week by week at the moment and liquidity is the order of the day, but but just thinking maybe a little bit year or 2 down the line.
How do you think capital allocation priorities will change in the group in the next year or so.
Brian, obviously, our focus is very much on the short term. I if we see through the crisis, I think that in the kind of medium term that evolving opportunities are probably somewhat limited. So it's unlikely that there would be investments in that area. However, we are very excited about the packaging side of the business and that the strategy is really working for us. And we think that we can, we can grow in all our regions.
The South African containerboard, you just said from Alex, we have buoyant demand. We make good margins there. I think in time, there can be investments there, in Europe and the U. S, as our board business go from strength to strength, and the we receive declines in graphic paper and the opportunities that, the shift from paper, sorry, from plastic to paper, as those opportunities come up, in time, that would be an area where we would like to invest, but we're not going to be doing that at this stage. It's about protecting liquidity and cash flow at this point in time?
Yes, I think you're more along the lines of sort of balance sheet management and balance sheet structure. Do you think that that will need to change going forward or you're happy with the kind of 2 times net debt EBITDA kind of labels, which is better than about historically?
Yes, look, it's been a big learning curve, isn't it? No one expected dissolving pulp prices to go this low. And then obviously this virus is unprecedented. I think, on the previous cycle, we obviously went below two times, we went down to 1.6. And I, as as our business does recover and things normalize once again, we would probably on the positive movement of a cycle, we would probably seek to go less than the 2 times.
Okay.
Okay, cool. Thank you. Brian, does that conclude your question?
Thank you. The next question comes from Ross Krehe of JPMorgan.
Good afternoon, everyone. Thanks for the presentation. Just three questions from me, if you don't mind. And the first two on costs, just firstly, on the on pulp costs. So if you look at the price per ton that Sappi is paying on purchase purchase pulp.
Could you give us an idea of the run rate of how that's moved over the last 2 or 3 quarters? I guess what I'm trying to get to is, has that reached a stable level now or are you still seeing declines in your pop costs? And then on fixed costs, you talked about the 10% saving in April. Do you think that's potentially sustainable for on a full year basis?
And then in the graphic paper market, if you could just talk a bit
more about the capacity situation in both North America and Europe. In terms of what shuts you're seeing, and in Europe, the big conversion that's happening, if you have any inside to how that's proceeding or how those volumes are winding down? Thanks.
Yes, yes. Okay. On the first one on pulp costs, they remain flat for a significant period of time, more recently, over the last couple of months. And I say March, April, there's probably been a $10 to $20 a ton increase, but it's not been, substantial as of yet. Obviously, everybody was talking about higher pulp prices, but then the virus came and that probably put a on that.
So marginal increases, but not significant at this point in time. The fixed costs, yes, certainly, as we take production downtime, And as we're at the height of the crisis, we will we do believe that we can continue to achieve 10% fixed cost savings at least. On the graphic side, look, everybody's taking production downtime at the moment. There's been no new announcements. However, the big project which we referred to As far as we are aware, and we are led to believe that is on track and will happen.
Mary, I don't know if you want to add to that.
No, I think that's exactly right. We have no other information that was publicly available, but we do see that there's a great deal of commercial shops going down
in the entire industry Okay. Thanks very much guys.
The next question comes from Sean Umerer of Konext Research.
Good afternoon guys. Just in terms of, I guess, working capital organization, can you maybe just sort of fish it out as the year progresses specifically, so if you look at sort of, procurement savings you guys are expecting to sort of monetize I'm assuming a lot of that is linked to the sort of downsizing, your input cost. I'm just trying to think how are you way up benefiting from that as well as you're working to mention for this question. Thanks. Yes.
I'll let explain, expand a little bit further on the working capital, but I mean, obviously, a big part of that is we don't want to be sitting with inventory risks. When demand is as soft as it is, but Glenn, you want to expand further.
Fine. Our working capital year on year came down by about $100,000,000 And we're managing our working capital as a percentage of our sales. So that was, in fact, slightly better than the same time last year. And, as it progresses towards September, that percentage usually declines from the current rate of about 12% down to about 9% of net sales.
So strong focus on that. On the procurement side, yes, you're right. I mean, a lot of it is short term opportunities related to current pricing of chemicals and pulp, but I think we've demonstrated over a number of years that we are able to take costs out of the business, and we will continue to do that. Each of the regions is focused on taking cost side. So it's not just market pricing moves.
And as we move forward, obviously with the pressure on short profitability, we need to continue to take out costs. So I think there will be an ongoing savings over and above the short term market price moves. Okay, great. Thank you.
And then just secondly, in terms of the 10% reduction in fixed costs. I mean, it's quite a hefty number. I mean, demand inflation and ultimately more across the region. So is it fair to say that humanity slips. And then just on that, the, obviously, the 4 categories, if you maybe come into cost submitting through?
Well, firstly, it's across all the regions. We've been able to take up substantial costs. Some of it, as you would appreciate relates to production downtime, and the fact that we are availing ourselves of, support from the governments, for that. Some of it relates to the maintenance, shuts that we're putting up, until early in the new financial year. As you'll appreciate when you have vacancies in the business, you, because of the activities unless you seek not to fill those vacancies, and not employee use staff.
So that's giving us, further savings. And then going across the the individual categories? I don't know if there's anything you want to add.
We have
no, it's across all categories that we're looking at. And so in is no specific.
Okay, great. And it's just starting to help with the question about industry capacity, but I mean, affect European graphic as you know, there obviously is a lot of downtime.
And I
think, the removal version is quite a nice tailwind. But also that our sort of permanent SC reduction, to you guys' recommendations take place borrowing the sort of temporary commercial last time. Because if you don't have a 30% drop, and then assume you're a really good agent, 10% run rate beforehand. You've got a 20% extra incremental pro, which is saying 67% should come back. So how do you sort of see that playing out
Well, look, what I would say to you is before the before the lockdowns are cut, our operating rates in the 90s, in the mid-90s. We were, operating rates were pretty good. Obviously, we've seen this 30% decline. I already indicated earlier that we were of the belief that 20% of that could come back next year. The big chart that we've referred to is about 15% of the market.
So if there is recovery plus plus are, as, as you know, we are looking to take out, or potentially close some of it, sorry, stocks that PM too. So we're taking out capacity as well. So if the market recover as we expect them to do, even if it is 10% less than it when we started, we think operating rate actually next year can be pretty reasonable.
Shown, does that conclude your question?
I think he's dropped off. So, I don't know what to answer or or what, but anyway, we we can move on operator.
Thank you very much, sir. The next question comes from Tom Ehud of Royal London Asset Management.
Good afternoon. Thank you. My first question around working capital has already been answered. It sounds like you're going to get a bit of a release in the back end of the year. I just wanted to ask with the actions you're taking and everything that you're seeing in the market, DWP EBITDA margin, Are you confident of being able to maintain those above where they fell to in the last crisis?
Yes. Look, it's an interesting question because obviously selling prices are still at historical
Ladies and gentlemen, please remain on line. Please hold. Thank you.
Operator, are we back?
Yes, sir. You can go ahead. Mr. C. Penney has returned.
Thank you.
Apologies for that. We obviously dropped off. I was talking about dissolving pulp prices, and I was saying that there still at, low levels at around $6.30 a tonne. The one positive we have is obviously that the South African rent has weakened considerably against, the dollar, and that will lower our cost base in South Africa. So that will, help protect the margins some I mean, in time, when things do normalize, we would expect, the balance in the market to normalize and then in time, obviously, pulp prices to go back up.
But in the short term, the weaker rand we actually think we can get reasonable margins. Obviously, the tons are less, but the margins themselves in South Africa for the tons that we sell should be okay. Cost coming down as well. Operator.
Anton, does that conclude your question?
Yes, thank you.
Thank you very much. Thank you. The next question comes from Wade Napier of Avian Capital Markets.
Hi guys. Thanks for the call. A couple of questions on my side. In the specialty packaging and particularly the box board market, you spoke of of strong sort of consumer and sort of demand relative to weak luxury sort of demand. Can you give us a sort of bit of color about the sort of end markets and what percentage each comprises?
My second question would be like, would be with regards to Ingowana. With can you sort of give us some color about that mill's ability to swing from a bit of DWP production towards more containerboard how does that look in the upcoming quarter and 2 quarters potentially? And then final question on the on the cost efficiency and procurement savings of $105,000,000. What sort of run rates are you currently at Just want to get a sense of what store to come. Thanks very much.
Just on the, on the first question, but we don't we obviously don't split it by each of the degrees in the results that we released. But probably about three quarters of the segment, is doing is doing well under these circumstances. And the other quarter is under under pressure, in terms of the exposure. So that's the rough relative size of what is is doing well versus being challenged. The Ingridwana, LX, do you want to just talk for more about the ability to swing through the paper pulp there?
Sure.
Constrained on the paper machine in terms of making containerboard. So we don't have there's some, I would say, This is a maximum of about 2% efficiency improvement that we could achieve. However, we are fully capable of making, fully bleached hardwood market pulp and we actually, have completed our first run, which we are selling, we are exporting and selling in the rest of the world. Continue with that. That will be the flexibility that we have.
And that will give us obviously flexibility in the week dissolving potash the cost procurement, the 105, we would it's about 40% in the first half of the year and the other 60% in the second half.
Great. Thanks. Thanks very much.
We've been rejoined by Wayne Onura of Promix Research. Please go ahead, sir.
Hi, Steve. Sorry about that. Cut out. And just my last question in terms of, if you look at the balance sheet, so I mean, obviously, Q1, Q2 or sorry, telling the Q1, Q2 next is pretty key in terms of what's going to happen in terms of the covenants and how the balance sheet is looking. So I guess Daryl, that's a good question at what sort of net debt to EBITDA or how would you look about it that a potential capital injection would be required?
How do you guys think about that? Thanks.
When you say capital injection, you talk about equity?
Correct, John.
Yes, look, that's not something we're considering at the moment. We think we've got, significant, cash reserves and liquidity to manage through this crisis. And, when markets do normalize early next year, we are our leverage ratios come down very quickly. So that's not something we're considering at this stage.
The final question comes from Zealand Kieran of Muneja.
Thank you very much for the details. You gave around CapEx and the changes to the guidance. Understand it's really around 1,000,000 for the full year given 1,000,000 for the remainder of the year. Is there any reason to take it further down if you need to reset your closely on all the hundred times in the interim. And one more thing to do, how much more could you potentially cut it?
Yes. The problem we have is that, obviously, we had this big project at at Saiccor. So a lot of the work was undertaken. So it would be difficult to take it down much further than there may be $1 or $2 here and there, but I don't anticipate it being substantially lower than the $3.70 guidance that we've given.
Okay. Thank you. And then, you also talked about the market kind of graphics, for the business. Is that purely on the expectations of this, that shutdown that's expected from one of your competitors? Or is it just a better mix?
I just wondered what was the driver behind the mark share again?
Yes. Look, I wouldn't put it specifically to the to the competitor that's coming out. Clearly, it's a factor, and then it creates opportunities for us. But I think, Yes, I think we've done a tremendous job in both regions in North America and Europe, providing consistent, reliable, high quality product out. You know, a lot of competitors have gone through, ups and downs, and we've been, we've been very consistent we've had a focused, a proactive strategy, with our customer.
I know this sounds like a marketing field, but that's what it's all about. Fantastic work done by our marketing teams to keep the relationship then on the manufacturing side, reliable, consistent supply. It's that's what it's all about. And, we've been able to do that and we done it over a number of years and we've gained substantial market share and we would look to continue to do that. At
Zealand, does that conclude your question? Okay,
operator. Let's
move on. Operator, do you have
any closing comments? Thank you.
No, operator, I just want to thank everybody for joining us on the call today. And we forward to giving update in 3 months' time. So thank you very much.