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-19 thing as I'm sure that's the area where you want to focus on mostly. Just as I said, to start with the numbers themselves. EBITDA for the quarter, and sorry, I'll call out page numbers as I go. Page three. The EBITDA for the quarter was $131 million, down 30% year-over-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 low dissolving pulp prices continued, and that's the reason for 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 upwards. Obviously, with the outbreak of the Coronavirus in the Far East, that put a stop to that. 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 the 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.
Our EBITDA for the quarter almost doubled up to $50 million. It has become a substantial business for us, and will continue to grow as we move forward. Then on graphics, market declines that we have been seeing in the quarter were 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-over-year, which I think is a pretty good performance. That was even though we began to see an impact on demand as we got towards the end of March as the lockdowns began to gain traction. The mechanic integration was on track. The external sales there are included in the dissolving pulp segment. I want to stress to you that the liquidity is strong. We have cash on hand of $268 million and undrawn committed RCF facilities of $642 million.
Turning to page four, the earnings bridge. The big story, as I highlighted earlier, is the decline in pricing, and that's almost entirely related to dissolving pulp. We were able to save substantial costs in the business. Obviously, pulp prices were low across the board, that lowered our costs on the paper side, the raw material costs on the paper side. That's the biggest part of the variable cost positive that you're seeing there. We were able to take out some fixed costs as well. Moving to slide five. This is the product contributions, it's on an LTM basis. 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 be a lower contribution. Turning to slide six, this is a graph that shows the volumes and margins. I think it underscores what I was saying earlier. Graphic paper performing pretty well and great job done by the respective teams to gain the kind of market shares that we've been doing. The margin's 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.
Very happy with the level that we've achieved there and the growth that we're achieving. Unfortunately, and again, it's 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 seven, it's our debt maturity profile, and the bulk of 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, it was about ZAR 750 million, that matured in April. We put in a bridge facility for that because we, as you'll appreciate, the public markets, it was not the right time to go. We've put in place a 12-month bridge facility there, and when the 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. That just gets rolled on an ongoing basis. It's been like that for a long period of time. On slide eight is our CapEx. We've been very carefully looking at our CapEx in light of the short-term challenges posed by the virus. We've been able to reduce our CapEx estimates for this year to about $370 million. It's about an $80 million 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. We are not able to continue construction at this stage at the levels of lockdown we're in. Other CapEx, what was regarded as non-essential, we've been able to push out.
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 less than normal. Normally that's $150 million-$160 million. We have pushed out a couple of the shuts to early in the new financial year, and that's why it looks lower. When you get to the 2021 year, the maintenance CapEx will obviously have those shuts in. The blue bar in 2021 will jump back upwards to somewhere between $150 million and $200 million. Turning then to the segments, firstly, on page 10, is Europe. 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 Finnish strike, industry strike, that impacted on Kirkniemi. Our volumes for coated mechanical paper, which obviously Kirkniemi makes, were impacted. Despite all of that, we were able to grow. Because of the market share gains, we had actually less commercial downtime than the prior year. Very pleased with the progress on packaging and specialities. We'll talk a little bit more about the COVID-19 impact. What we saw in the quarter, January and February for Europe was very good. Then in that last two-week period of March, that's when obviously some countries began lockdowns, and we started to see cancellations coming through. 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. On to slide 11, North America. A similar story. Substantial market share gains in coated woodfree. EBITDA was flat year-on-year, but it's important to point out that takes the dissolving pulp in there, and obviously the impact from the lower dissolving pulp price. 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. That gave us about 68%, actually, was the volume increase for packaging. Very pleased with the progress. Graphic paper was up 10% as well. You can see they did pretty well. If it hadn't been for the dissolving pulp, the earnings would have been up substantially on a year ago.
Similarly to Europe, lower costs, and we began to see the impact of COVID-19 at the end of March. To page 12, South Africa. Obviously, South Africa has the biggest exposure to the dissolving pulp. With prices down $240 odd a ton year-on-year, that is going to have a substantial impact 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. We will continue. We anticipate further improvement in the second half of the year because of the strong demand, particularly for citrus fruits exports out 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, COVID-19 as well. We'll talk more about that later.
Like all the regions, good work done on costs and variable costs were lower here. 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. First 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 operations to ensure that we can have continuity, changing shift systems, rotational teams, strict health protocols, all the things 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. They've been aligned to what we've been striving to achieve. The operations themselves, we were able to continue production other than the Condino mill in Italy, which was actually 10 days down at the end of March. Subsequently, through amazing work, they were able to get back up producing. The key now, obviously, is that we don't want to be sitting with excess inventories. We want to reduce our costs, and obviously manage cash and liquidity. We are taking production downtime where it makes sense to match demand. Obviously, we do avail ourselves of temporary unemployment support in Europe and the U.S. where we can do so. Moving to slide 14. Cash management is everything in a crisis like this. We have been proactive.
We put in place a covenant waiver, and we did announce it to the market. We were very fortunate. We moved early. We anticipated the challenges that were coming. We've got great relationships with our banks, and they were very supportive and probably ahead of the curve against many organizations. We were able to put in place the waiver through to March 2021. That gives us a degree of flexibility. I already mentioned that we put in place a bridge financing for an SA bond that was maturing. We reviewed the CapEx commitments and strong focus on procurement savings. We've already given an indication of $64 million of savings earlier in the financial year. Now we're upping that to $105 million, and we'll continue to look for opportunities. Similarly, on the fixed costs side, looking to take out fixed costs.
In April, we were able to take out at least 10% of fixed costs. 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. Obviously, avail ourselves to temporary unemployment support that we can get. Receivables, interestingly, so far, the overdues is constant with prior quarters, and I would extend that into April as well. Clearly, there's more risk, and it's something that we are managing very closely. I've talked about the government assistance. As I said, very short-term focused. 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. These won't be surprises to you, but obviously as the virus spread and lockdowns occurred, the spend on advertising and marketing dropped off substantially. We started to see the impact at the end of March, obviously, it carried into April as well. We'll talk about it later, but April was down 27% in this segment. Just for information's sake, clearly this is an unprecedented time, but 2008-2009 was a challenge as well. We had the global financial crisis, at that time, we also saw 30% declines at the height of the crisis. Incidentally, the following year, we were able to recover about two-thirds of that decline. Whilst we think the short-term challenges will be there, we do anticipate in time in the future, there will be a recovery. We have lower input costs.
A lot of our raw material costs, prices have come down, that does help a little bit to support margins. Selling prices for graphic paper, down a little bit, holding up reasonably well. Interestingly, the operating rates are, obviously prior to the big shuts that we're taking now, operating rates were pretty good. On packaging and specialties, 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. 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 have had a tremendous impact on demand for clothing, which is an indirect impact, obviously on dissolving pulp. We've got a couple of slides to show you some of the numbers. In April, volumes were about 35% lower than we had expected, prior to the crisis, that is. Exchange rates are helping us as the rand has weakened. Obviously, there are a number of suppliers that are taking shuts, so that will help with the balance of the market a little bit. BCTMP, incidentally, prices have actually started going up, so that will help the Matane external sales. Slide 18, we included just as a reference point, but this is U.S. retail sales in March. It's the latest data we have anyway. You can see that clothing is down 50%. That is obviously worse than the 35% we experienced in April for dissolving pulp.
That tells you that we're probably not at the bottom of the crisis, and that won't be a surprise to you because the lockdowns are still ongoing. From a dissolving pulp perspective, the rest of the quarter is probably going to be worse. If the lockdowns get extended, obviously then there's a risk into Q4. 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 has 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. It is consistent with what I was saying earlier, that demand in May and June is going to be under significant pressure for dissolving pulp. Turning to the strategy, we've got less slides on this.
Obviously, we can't lose sight of the long term as we face the short-term challenges. 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 Stockstadt PM2, we've talked about this and the potential closure of that in the near future. That's currently operating at about 80% less than previously. We've announced a temporary shut on the Lanaken PM7. Again, just so that it minimizes our costs and reduces our inventory exposure.
We will focus on the balance sheet, and obviously ensure that we have something in place beyond the March 2021 period to give us the flexibility as we move forward. A big push on growing our packaging and specialty segments. We need to continue those ramp-ups and take advantage of the opportunities that we have out there. Turning to the outlook. Obviously, we've withdrawn earnings guidance. We announced that previously due to the uncertainty of COVID-19. Obviously, we know that dissolving pulp and graphic paper demand will be under pressure because of 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. More than likely, the project now will only be completed in the second half of the financial year 2021. The last bullet, obviously, we talked about maintenance shuts, saving some cash flow there by pushing them out a little bit because we don't need them at this stage. We would expect CapEx in the second half of the year to be about $200 million. Operator, that's the presentation. I'm going to hand it back to you now for questions.
Thank you very much, sir. Ladies and gentlemen, at this time, if you'd like to ask a question, you're welcome to press star then one on your touch-tone keypad on your screen. At which time you'll hear a confirmation tone. Following this process, we'll place you in a question queue. If you decide a question have been addressed and you wish to withdraw your question, you're welcome to press star then two on your touch-tone to remove yourself from 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 James Twyman of Prescient.
Thank you very much. I've got two questions. First one was, can you give any idea about what sort of level of government 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 CapEx you're going to get from all the downtime. Secondly, on the Chinese market, what are you seeing in terms of closures or increased downtime in the viscose and dissolving pulp markets? There should be a lot of pain going on there, which should help the market in time. I'm understanding that dissolving pulp production there has come to a standstill. What are you seeing there, please? Those are my two questions.
Yeah. The government support, it's difficult to give an exact number. As you'll appreciate, there are complex rules in different countries, particularly in Europe. I'd like to think it would be as much as $10 million a quarter. That's not As I say, we're still working through that.
Is that in Europe or total, would you say?
Yeah. I don't want to give an exact number, James, you'll appreciate that. I'd like to say it would be a minimum of 10 across the board.
The company.
There's none in South Africa. It's the Europe and the U.S.
Okay.
A minimum of 10. I don't want to give an exact number and then disappoint you.
On the second question, I'll let Mohamed elaborate further. What I would say is that firstly on the supply side of dissolving pulp, there's very little activity on the Chinese side. The viscose 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. Mohamed, 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 paper pulp to unbleached kraft pulp. With regard to dissolving pulp from outside of China, there also, we have seen quite a few announcements. There's been a public announcement that came out from the U.S., where a company has indicated that they are going to be taking or have taken shutdown for about 90 days. We have also picked up information that a producer who has already converted to DP has delayed the actual production of dissolving pulp through to sometime in June.
Also in Europe, there has been public announcement around one particular company where they have 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. Lots of dissolving pulp capacity is currently out of production.
Mohamed, on the viscose side, just chat about that in China.
On the viscose 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 of pain for viscose producers. We have started to see also a production coming out of the viscose site in China based on the CCFGroup, 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%. There's also a lot of capacity coming out at the moment on the viscose side.
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 is 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 is now happening in China.
Okay. Thanks, James.
Thank you very much.
The next question comes from Brian Morgan of RMB Morgan Stanley.
Hi, guys. Thanks very much. If I could just ask a question around DWP and maybe the viscose 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. Is this going to be sort of a flatter recovery? Is it going to be more V-shaped recovery? I'm thinking specifically, as we go into the third calendar quarter, where are the inventories sitting? Are the inventories sitting at clothing retailer level? Are they sitting at manufacturer level? Where do you think the inventories are sitting? How might that translate into ultimate DWP demand sort of back end of this year, especially thinking about things like seasonality, et cetera?
Look, it's clear based on the data we have, it's right across the supply chain where inventory levels are high, as you would expect. That is going to be a further risk factor as we look at the timing of the recovery. That's obviously why I said earlier that, firstly, that 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 shops begin to open once again. You start to get that demand for the product and flowing through the supply chain. Obviously, you have seasonality involved. A lot of the product is summer season for the Northern Hemisphere.
As you move into the winter season in the Northern Hemisphere, that you are going to have the pull 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 two, obviously this quarter, next quarter will be under pressure, and it's probably going to spread into the first two quarters of the next financial year.
Okay, cool.
It's very hard to pinpoint. There is so much uncertainty.
Yeah, of course. In terms of South African containerboard, roughly 500,000 tons of containerboard, how much would you say goes into citrus and how much to sort of normal economy? Approximately.
It's at least two-thirds that goes into the export market, a third that goes into the local economy. Obviously, we are looking at opportunities, and there's actually strong demand for exporting containerboard rather than selling it to the local converters.
Okay. The next quarter might not be that bad from a volume perspective.
No, we don't think it will be. The citrus industry is talking about a 13% increase year on year in terms of crop.
Okay, got you. Cool. Thank you. Finally, Steve, maybe just a question on capital allocation. I know you're managing it week by week at the moment, and liquidity is the order of the day. Just thinking maybe a little bit a year or two down the line, how do you think capital allocation priorities will change in the group in the next year or so?
Yeah. Brian, look, obviously, our focus is very much on the short term. If we see through the crisis, I think that in the medium term, that dissolving pulp opportunities are probably somewhat limited. It's unlikely that there will be investments in that area. However, we are very excited about the packaging side of the business, and the strategy is really working for us, and we think that we can grow in all our regions. The South African containerboard you just heard from Alex, we have buoyant demand, we make good margins there, and I think in time there can be investments there.
In Europe and the U.S., as our board businesses go from strength to strength, we see declines in graphic paper and the opportunities that the shift from plastic to paper, as those opportunities come up, in time, that would be an area where we would like to invest. We're not going to be doing that at this stage. It's about protecting liquidity and cash flow at this point in time.
Yeah. I was thinking more along the lines of balance sheet management and balance sheet structure. Do you think that will need to change going forward, or are you happy with the kind of 2x net debt, EBITDA kind of levels that you've spoken about historically?
Yeah. Look, it's been a big learning curve, hasn't it? No one expected dissolving pulp prices to go this low. Obviously, this virus is unprecedented. I think, on the previous cycle, we obviously went below two times. We went down to 1.6. As our business does recover and things normalize once again, on the positive movement of a cycle, we would probably seek to go less than the two times.
Okay. Cool. Thank you.
Brian, does that conclude your questions?
Yep. That's it. Thank you very much.
Thank you. The next question comes from Ross Krige of JP Morgan.
Afternoon, everyone. Thanks for the presentation. Just three questions from me, if you don't mind. The first two on costs, just firstly on pulp costs. If you look at the price per ton that Sappi is paying on purchased pulp, could you give us an idea of the run rate of how that's moved over the last two or three 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 pulp costs? On fixed costs, you talked about the 10% saving in April. Do you think that's potentially sustainable on a full year basis? 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.
In Europe, the big conversion that's happening, if you have any insight into how that's proceeding or how those volumes are winding down? Thanks.
Yep. Okay. On the first one on pulp costs, they remained 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-$20 a ton increase. 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 brake on that. 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 do believe that we can continue to achieve the 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.
The big project which you referred to, as far as we are aware, and we are led to believe, that is on track and will happen. Mohamed, I don't know if you want to add to that.
No, I think that's exactly right. We have no other information than what is publicly available. We do see that there's a great deal of commercial shuts going down.
In the entire industry in Europe.
Okay, thanks very much, guys.
The next question comes from Sean Ungerer of Chronux Research.
Good afternoon, guys. Just in terms of, I guess, working capital optimization, can you maybe just sort of flesh that out as the year progresses, specifically, if you look at procurement savings you guys are expecting to monetize. I'm assuming a lot of that is linked to the sort of downsizing your input costs. I'm just trying to think how you weigh up benefiting from that as well as your working capital mentions. Hope that's a question. Thanks.
Yeah. I'll let Glen expand a little bit further on the working capital, but 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. Glen, you want to expand further?
Fine. Our working capital year on year came down by about $100 million. We're managing our working capital as a percentage of our sales. That was, in fact, slightly better than the same time last year. As it progresses towards September, that percentage usually declines from the current rate of about 12% down to about 9% of net sales.
There's strong focus on that. On the procurement side, yes, you're right. A lot of it is short-term opportunities related to current pricing of chemicals and pulp. I think we've demonstrated over a number of years that we are able to take costs out the business, and we will continue to do that. Each of the regions is focused on taking costs out. It's not just market pricing moves. As we move forward, obviously, with the pressure on short-term profitability, we need to continue to take out costs. I think there will be an ongoing savings over and above the short-term market price moves.
Okay, great. Thank you. Just secondly, in terms of the 10% reduction in fixed costs, that's quite a hefty number. Do you mind fleshing that out a bit more across the regions or is it fair to say that it's evenly split? Just on that, obviously, the four categories, if you maybe comment across how that's going through.
Well, firstly, it's across all the regions. We've been able to take out substantial costs. Some of it, as you would appreciate, relates to production downtime. 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 out until early in the new financial year. As you'll appreciate, when you have vacancies in the business, because the activities are less, you seek not to fill those vacancies, and not employ new staff. That's giving us further savings. Glen, across the individual categories, I don't know if there's anything you want to add.
No. It's across all categories that we're looking at. There's no specific.
Okay, great. Just trying to harp on the question about industry capacity, but if you look at European graphic capacity now, there obviously is a lot of downtime. I think the Oulu conversion is quite a nice tailwind. After that, how much sort of permanent capacity reduction do you guys anticipate actually needs to take place barring the sort of temporary commercial downtime? Because if you look at a 30% drop and then assume you're running at a 10% run rate beforehand, you've got a 20% extra incremental drop, of which you're saying 67% should come back. How do you sort of see that playing out?
Well, look, what I would say to you is before the lockdowns occurred, our operating rates were in the 90s, in the mid-90s. Operating rates were pretty good. Obviously, we've seen this 30% decline. I've already indicated earlier that we're of the belief that 20% of that could come back next year. The big shut that we've referred to, is about 15% of the market. If there is recovery, plus, as you know, we are looking to take out or potentially close Stockstadt PM2. We're taking out capacity as well. If the markets recover as we expect them to do, even if it is 10% less than when we started, we think operating rates actually next year can be pretty reasonable.
Sean, does that complete your question? My apologies.
I think he's dropped off.
He just has.
I don't know whether to answer or what, but anyway, we can move on, operator.
Thank you very much, sir. The next question comes from Tom Elliott 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 on 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 margins, are you confident of being able to maintain those above where they fell to in the last crisis? Thank you.
Yeah, look, it's an interesting question because obviously selling prices are still at historical.
Ladies and gentlemen, please remain on line. We seem to have lost the main speaker. Please hold. Thank you.
Operator, are we back?
Yes, sir. You can go ahead. Ladies and gentlemen, thank you for your patience. Mr. Steve Binnie has returned. Thank you.
Apologies for that. We obviously dropped off. I was talking about dissolving pulp prices, and I was saying that they are still at low levels at around $630 a ton. The one positive we have is obviously that the South African rand has weakened considerably against the U.S. dollar. That will lower our cost base in South Africa. That will help protect the margins somewhat. 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. 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. Yeah, obviously, input costs coming down as well. Operator?
Tom, does that complete your questions?
Yes. Thank you.
Thank you very much. Ladies and gentlemen, just a reminder, if you'd like to ask a question, you're welcome to press star and then one on your touchtone phone to place yourself in the question queue. The next question comes from Wade Napier of Avior Capital Markets.
Hi, guys. Thanks for the call. A couple of questions on my side. In the specialty packaging and particularly the box board markets, you spoke of strong consumer and food demand relative to weak luxury demand. Can you give us a bit of color about the end markets and what percentage each comprises? My second question would be with regards to Ngodwana. Can you 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 two quarters potentially? Then a final question on the cost efficiency and procurement savings of ZAR 105 million. What sort of run rates are you currently at? I just want to get a sense of what's still to come. Thanks very much.
All right. Just on the first question, we obviously don't split it by each of the categories in the results that we release. Probably about three-quarters of the segment is doing well under these circumstances, and the other quarter is under pressure in terms of the exposure. That's the rough relative size of what is doing well versus being challenged. The Ngodwana, Alex, do you want to just talk some more about the ability to swing to the paper pulp there?
Sure. We're constrained on the paper machine in terms of making container boards. There's some, I would say, still a maximum of about 2% efficiency improvement that we could achieve. We are fully capable of making fully bleached hardwood market pulp, and we actually have completed our first run, which we are exporting and selling in the rest of the world. We'll continue with that. That will be the flexibility that we have.
That will give us, obviously, flexibility in the weak dissolving pulp markets. The cost procurement, the $105, it's about 40% in the first half of the year, and the other 60% in the second half.
Okay, great. Thanks. Thanks very much.
We've been rejoined by Sean Ungerer of Chronux Research. Please go ahead, sir.
Hi, Steve. Sorry about that lockout. Just my last question in terms of, you look at the balance sheet. Obviously, Q1, Q2, also coming to Q1, Q2 next year is pretty key in terms of what's going to happen, in terms of the covenants and how the balance sheet is looking. I guess, devil's advocate 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're talking about equity?
Correct, yeah.
Yeah. 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. When markets do normalize early next year, our leverage ratios come down very quickly. That's not something we're considering at this stage.
Okay, great. Thanks, Steve.
Thank you. The final question comes from Selen Kirun of München. Please go ahead.
Hi, good afternoon. Steve, thank you very much for the details you gave around CapEx and the changes to the guidance. I'm guessing it's really around $380 million for the full year, given $200 million for the remainder of the year. Is there any room to take it even further down if you need to? You said you are watching it closely on $810 as your maintenance. I'm wondering if need be, how much more could you potentially cut it?
Yeah. Look, the problem we have is that, obviously, we had this big project at Saiccor. A lot of the work was undertaken. It would be difficult to take it down much further than There may be a dollar or two here and there, but I don't anticipate it being substantially lower than the $370 guidance that we've given.
Okay, thank you. You also talked about gaining market share in the graphics side of business. Is that purely on the expectations of the 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 market share gain.
Yeah. Look, I wouldn't put it specifically to the competitor that's coming out. Clearly, it's a factor, and it creates opportunities for us, but I think we've done a tremendous job in both regions, North America and Europe, providing consistent, reliable, high-quality product. A lot of competitors have gone through ups and downs and we've been very consistent, and we've had a focused, proactive strategy with our customers. I know this sounds like a marketing spiel, but that's what it's all about. Fantastic work done by our marketing teams to keep the relationships, and then on the manufacturing side, reliable, consistent supply. That's what it's all about. We've been able to do that, and we've done it over a number of years, and we've gained substantial market share and we would look to continue to do that.
Selen, does that conclude your questions?
Okay, operator, let's move on. Operator, are you still there?
Apologies for putting you on mute there. That was the final question. 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 look forward to giving an update in three months' time. Thank you very much.