Good day, ladies and gentlemen. Welcome to the Sappi Limited first quarter 2018 results conference. All participants are currently in listen-only mode. There will be an opportunity for you to ask questions later during the conference. If you should need assistance during the call, please signal an operator by pressing star then zero. Also note that this call is being recorded. I would now like to turn the conference over to Mr. Stephen Binnie. Please go ahead, sir.
Thank you. Good day, everybody. Thank you for joining us. As I go through the presentation, as always, I'll try to call out the page numbers so that you can follow me as I go through. I'll start on page four of our investor presentation deck. It's some of the highlights for the quarter. EBITDA, excluding special items, was $172 million. That's comparable with the $181 million last year on a like-for-like basis. As you know, we had an extra trading week, which accounted for about $20 million. That leads into the second bullet point. Our profit for the period, the bottom line, was $63 million versus $90 million. In addition to the extra week that was there last year, we also had a deferred tax write-off related to the lower corporate tax rate in the U.S. that was recently announced.
We had to write off the deferred tax asset that we had or a portion thereof. As a consequence, earnings per share, excluding the special items, was $0.14 compared to $0.16 last year. Net debt was $1,349 million. That's basically flat on last year, which was $1,338 million. That's despite the fact that the EUR is significantly stronger against the US dollar than it was a year ago. We estimate that on the debt number, because a lot of our debt is denominated in EUR, that was about just over $100 million impact just on currency moves. Turning to page five, some of the key ratios. Firstly, the net debt to EBITDA ratio. As you know, we have picked up our CapEx a little bit, but we still strive to maintain that below the 2 times level. This quarter was 1.8x.
EBITDA per percentage was lower than a year ago at 12.9%. That comes back to some of the factors that we talked about in our results announcement. Mainly the currency move. The ZAR is stronger. The South African earnings was adversely impacted by the currency. We did have lower volumes on the dissolving pulp side and lower pricing as well versus the prior year. Taking that into an earnings bridge on page six, this shows 2017, quarter one versus 2018. We didn't back out the extra week on here because it's embedded in the numbers. Clearly that's a big part of the first item that you see there, the sales volume decrease. You've got one less trading week.
Our raw volumes were less on dissolving pulp, as I mentioned, and in the U.S., we had some extended shuts for the project work that we were undertaking, and there was some smaller production challenges as well, which impacted on volumes. In the price and mix number, if you look at our major businesses, all of them pricing is showing a recovery and we've been implementing price increases. Again, you have the noise here of currency. The euro and the rand are significantly stronger than a year ago, and you convert that back to dollars, as we do for this bridge, and it has an adverse impact. On the cost side, we have pressure from higher pulp prices coming through, mainly in the European business, but chemicals and other raw materials are also rising a little bit. Fixed cost is kind of like the annual increase.
On the far right, you see exchange rate, which is a small positive. That's the translation impact from currency conversions. Moving to slide seven, we did commit to you that we would now separate packaging and specialities as a separate segment. We've done that in these numbers. On the left-hand side is the EBITDA. You can see that specialized sales is about half of our EBITDA, and we've talked about that in the past. The paper now split into the two segments, being printing and writing, 35%, and the packaging and specialty, 16%. We're making good progress here. Once the conversions are complete, and we'll talk some more about those conversions later in the presentation, we would expect the packaging and specialities contribution to continue to rise and the printing and writing to come down as we move forward.
Over time, we've set our target there of 25% from each segment. The maturity profile of our debt is reflected on page eight. We don't have any major debt maturing. The green bar that you see on the 2018 year, it relates to the South African securitization, but other than that, there's nothing material. It's looking pretty good. All our euro bonds you can see are from 2022 onwards. Turning to page nine is our CapEx. You can see the historical analysis, but in 2018, the number that we're reflecting there is $500 million. You may recall from the prior quarters that we talked about $450 million. It's a little bit higher, and again, there's a bit of currency at play there because of the stronger rand and euro, and we have projects obviously in those regions.
Also, and I'll talk about it some more later, we've also announced the debottlenecking at Cloquet on the dissolving pulp side to give us an extra tonnage there. The commencement of that project, there's a little bit of CapEx related to that. In 2019, we've shown you our projections, and we have a gray bar at the top, or block at the top, which relates to the potential expansion at Saiccor, which is subject to environmental approvals. I'll talk about that some more, but clearly we've got to go through the process of getting the environmental approval. We thought it was important to show you the impact on the CapEx if we do undertake the project. Moving forward into our product segments, firstly on page 11, we have printing and writing.
If we look at the supply and demand in the market, firstly, we've seen strong exports from our European business. There's been less competition on the Asian side in China. Our machines are full. The same time in North America, we've seen some capacity closures. We did talk about this the last quarter, but we saw two smaller players coming out and that's taken 15% of supply out of the market. Again, has meant that operating rates in the U.S. are very good. On the back of that, we have been able to implement price increases, obviously offsetting or attempting to offset the impact from higher raw material pulp costs. We've seen a series of increases in Europe and in North America. We've been successful, but it's important to stress there is a bit of a lag, as you would expect.
As the raw material price comes through, we obviously try to secure better pricing from our customers. Pulp prices continued to rise throughout the quarter on the back of the significant rises last year. It's not just on pulp. On chemicals, oil prices are higher, latex is higher. It's having an impact, and clearly is forcing our hand with regards to pricing increases on the selling prices. We will continue to manage our capacity in line with our expected demand. We expect to complete the conversions to specialties, which will reduce our capacity in this segment, but will obviously help improve the market dynamics. We continue to focus on costs. The mills that are left behind in this segment, the CapEx that we incur will be predominantly focused on procurement and efficiency programs to reduce costs. Turning to 12, this is on the specialty and packaging side.
Very encouraging. I'm sure all of you will have seen this. There's a significant pickup in global sentiment and legislation towards replacing plastic packaging with paper, and that's creating good opportunities for us. The timing of the acquisition that we made and the conversions is perfect because it's going to create opportunities for us to grow. The markets that we're in, and we've talked about it before on the specialty packaging side, they're all growing at 1% and 5%. It's really looking very good, the opportunities that are lying ahead. In South Africa, specifically on the virgin containerboard packaging, very good quarter. Excellent. Demand has been strong. On selling prices, again, look, we've got raw material prices going up, so we have to offset that. There has been price increases there.
The EUR does have a little bit of impact on our numbers because some of it's exported and is priced in USD. When you convert that back to EUR, you do have a little bit of an adverse impact. Clearly, with all the opportunities that are out there, we look to complete the conversions that we've announced. We've got the acquisition of Cham, which we announced during the quarter and will be completed during February. That's going to further expand our capacity and hopefully take advantage of the opportunities. On slide 13 is dissolving pulp. The overall market for dissolving pulp continues to be good. Continues to rise, interestingly, ahead of our long-term expectations. We've always talked about 4% and 5%, it continues to be above that. It's a good space.
On the capacity side, the supply side, yeah, there is some capacity coming on board, but we continue to be of the belief that demand will exceed supply in the short term, so that helps with market dynamics. A number of the swing mills that are out there are reverted to hardwood pulp production, because of the higher pulp prices on the paper front. Dissolving pulp prices, I talked earlier this quarter or the quarter we're reporting on, were lower than a year ago. They're still at relatively high levels and we've seen in recent couple of weeks prices starting to rise once again. The good news, polyester and cotton prices are high and have risen. Cotton prices have moved above dissolving pulp. All of these are encouraging for pricing in the short term.
As I mentioned earlier, with paper pulp prices being high, again, that further underpins pricing in this market, dissolving pulp. We continue to focus on being amongst the lower cost producers. We've got debottlenecking opportunities, which I will talk about in some more detail in a later slide. Then on Saiccor, as I said earlier, we are going through an environmental approval process, to give us an extra 250,000 tons theoretically. Phase 1 of that would be to add 110,000 tons. That's in order to meet our short-term demand requirements. Obviously subject to the environmental approval. Moving to page 14. We move into the regions, and firstly, Europe. All in all, if you look at the European performance, I think a strong performance in the quarter in light of the fact that raw material prices have been rising so significantly.
I've already talked about strong export volumes and the success on price realization of selling prices. The graph that you see on the top right just shows you the relationship between hardwood pulp prices, the blue bar, and one of our product categories, our selling prices. You can see there is a lag, but we've been able to put through a series of price increases, and we've recently announced another one. We'll continue to push that up. It's important to stress these are prices in euros. You may wonder why is the blue bar gone down a little bit in the last couple of months, but this is euros, because obviously a stronger euro is offsetting some of the impact from a higher dollar price. Specialities continues to be good. I talked earlier on the call, the opportunities are great.
We're up 9% in terms of volumes year-over-year, but as I said to you on the prior quarter, we are now up against capacity constraints because the mills are full. Clearly now that the Maastricht conversion is complete, we'll now be able to ramp up at Maastricht and boost our packaging volumes. That will create opportunities for it to rise further. Fixed costs were well managed. In North America, on slide 15, we've got a number of capital projects underway in the U.S. Clearly, the biggest one is obviously the conversion at Somerset. That's in 2 phases. There was a smaller phase 1, which occurred during this quarter, which impacted on volumes. We put in a new headbox at the Cloquet mill as well, which impacted on volumes at that mill. Then we had some smaller production challenges.
All of those meant that volumes were a lot lower than a year ago. I should stress all the numbers that you see, in terms of volumes and sales, do contain an extra week from the prior period. We've been successful at putting through price increases like we've done in Europe, but similarly, there's a bit of a lag. In some of your contracts, you have price protection and it takes time to ramp up. You can see on the top right that we've been able to reverse the trend of the decreasing prices, and we've seen a series of price increases. Like Europe, we've just announced a further increase. We would expect that to go up even further as we move through the rest of the year. The conversion at PM1 Somerset, I told you already, it was in a couple of phases.
At the end of this quarter that we're in now, the new quarter, we go into the bigger shut, and we estimate that impact of that shut is about $6 million. Moving to South Africa on slide 16. Firstly, on the packaging side, a really strong quarter. Again, we're full there and there are significant opportunities as we move forward to grow there. At the same time, on newsprint and office, smaller businesses for us, but have done very well and volumes have been up. The graph you see on the right is dissolving pulp, CCF China's prices. To my point earlier, you can see that October to January 2017 or October to December 2017 are below a year ago, however, they were still at pretty good levels. The graph you see on the far right of the graph, you see it clicked down.
Subsequent to this, it started moving up again, as I mentioned earlier. The short-term outlook is pretty good here. A lot of good work done in South Africa on costs and we will continue to focus on that. Clearly, the big headache for us at the moment in the short term is the stronger rand. We manufacture in rand and we sell in US dollars. It does have an impact on rand, but if you convert the profitability of the South African business back into US dollars, we are up on a year ago. Moving to strategy and the four pillars of our strategy and the first one being cost. On the cost side, page 18. A lot of work continues to be focused on ensuring that we reduce costs and focus on efficiency.
We've done a great job over a number of years, we've targeted another $60 million this year. The guys are working, we're pretty confident we can get that this year. Some of the examples of investments we've made are there. They're not new to you because we have talked about them in the last quarter, but we've got the Saiccor mill wood yard upgrade. That's getting us ready for the expansion that I talked about, capacity. We're putting in a new-- or we're upgrading the PM9 at Gratkorn for $30 million. On to slide 19, the rationalization of declining businesses. Markets have improved for graphic paper, clearly, over time, we would still expect demand to decrease and we've undertaken these conversion projects. We try to anticipate the demand.
The big initiatives on this front, obviously we've got the conversions of Somerset and Maastricht from graphic paper to packaging. At the same time, at Lanaken we're getting out of mechanical paper and into coated woodfree. That will reduce our exposure. Also a little bit of volume work being done at Ehingen mill and Stockstadt as well actually in time. We will progressively reduce our exposure here. On slide 20, the balance sheet side, a commitment on our part to be guided by the two times net debt to EBITDA principle there. The next bullet is on the bonds. I know it's a year ago, but we just call it out because it's still in the comparative numbers, that annual saving. You'll still get some of the year-on-year impact in the current year.
Overall, the finance costs, we estimate they're $60 million-$70 million. Turning to accelerating growth in our high margin products on page 21, I've talked about it a few times on this call already, but we see big opportunities obviously on dissolving pulp and specialties and packaging. That's where we're investing our CapEx. Saiccor, Cloquet and Ngodwana all have debottlenecking projects underway, and I think we've got some numbers on the next slide. So I'll refer to that just now. On the specialty packaging side, the small Rockwell technology acquisition that we did last year gives us access to barrier technology, which our customers are pushing us for. The push from or the shift away from plastics to paper, the timing was just perfect to acquire that technology.
Obviously the acquisition of Cham right in the space where we want to be where the markets are growing. In South Africa, I talked about the good performance at our Ngodwana and Tugela mills. In time, there's opportunities there to grow further there. We get very nice returns. I think if we go to the next slide, which is page 22, it talks about the numbers related to our DWP expansions. Clearly, we talked about it previously, we've been scanning the globe and looking for opportunities for potential pulp assets. Unfortunately, with the change or the shift in pulp prices, the world is in a different place. We can't rely on getting external assets. We have to focus on what we can control. With that in mind, we've got the projects underway for debottlenecking. Saiccor will give us an extra 10 this year.
Similarly, the 50,000 from Ngodwana. The new Cloquet project that I talked about earlier, giving us an extra 30,000. In addition to all that, we have still 70,000 swing capacity at Cloquet. Then the Saiccor potential expansion that I talked about. We'll go through the environmental process. If that all comes through, we believe that volume will be available to us in March 2020. If you combine all those volumes together, we believe that that will meet our short-term needs in terms of the demand that we have out there. We continue to evaluate longer term. Clearly beyond 2020, we would expect volumes to continue to grow. This solves our short-term challenges. Moving to the outlook, that's my last slide on page 24. Dissolving pulp demand, as I said, good.
We expect pricing to recover in Q2, for all the reasons that I highlighted earlier. In Europe, utilization rates are good, and we've been able to successfully implement selling price increases. Pulp prices are still going up, so it is a headache for us. North America, we, again, also been able to implement price increases. Important to point out that we do have the extended shut that I referred to earlier on PM1, which commences in Q2 and is completed in Q3. The Maastricht and Somer, and then I talk about it thereafter. Maastricht is actually now complete. We've done the work. It's in Q2. That was successful, and we're very excited about that opportunity. Now the Somerset one that's coming up soon will be completed by the time we're in our third quarter. The Cham acquisition, all the major conditions have basically been fulfilled.
There's one or two minor things which will come through in the next few days, then we expect that transaction to close at the end of February, then that will be integrated in the business going forward from that date. Our CapEx, $500 million, I talked about earlier, it's for all the projects that I've emphasized. Then the last bullet, just clearly exchange rates are having a significant impact on our numbers. You can see, as I've talked about the various business units, that they're all in a relatively good place at the moment. Unfortunately, the rand is moving against us in the short term. We're feeling pretty confident about our outlook statement that we've given to you. That's my presentation. Operator, I'm going to put it back to you for questions.
Thank you very much, sir. Ladies and gentlemen, at this time, if you do wish to ask a question, please press star and then 1 on your touchtone phone. If you decide to withdraw your question, please press star and then 2 to remove yourself from the queue. Again, if you wish to ask a question, please press star and then 1 now. Our first question is from Brian Morgan of RMB Morgan Stanley. Please go ahead.
Thanks very much. Steve, if you could maybe give us a little bit more color on the pricing lags between the paper price increases and when you actually see them. Perhaps give us maybe a split between spot sales and contract sales and maybe the average length of those contracts and maybe when we could actually see these prices reported in your numbers.
Yeah. Look, as you saw from those graphs earlier, it's been a series of price increases. I'll put you to Barry and Mark just now. There's typically about a three-month lag as you move through each quarter. We started increasing prices in Europe, for example, Barry, I think it was April last year. Each quarter thereafter, we've been doing that. You can see on that earlier graph have been maintained. Every time the pulp goes up, we have to put through another increase. Barry, do you want to expand a little bit further? We've just announced another one, haven't we?
We have. The case is that the pulp prices move up every month, so we've had 11 pulp price increases since the beginning of 2017. We really can only move the paper prices every quarter at best. In fact, for the publishing papers, we can move them only every six months. There is always a time lag. On the whole, what you say, Steve, is absolutely right. It's about a quarter behind.
Yep. You can see from the graphs that we talked about earlier, we've been able to successfully do it, but there's just that lag. Mark, do you want to elaborate further on in the U.S.?
It's very similar to what Barry just said about his environment in Europe. Roughly about two-thirds of our business has some form of Either 30-day, 90-day protection, and then it moves, and the rest of the business is spot business, and it moves through pretty quickly. We also announced another price increase last week as well. Yep.
Okay, that's great. I'm sorry, Barry, would you say that's a similar number for you in terms of that two-third split?
No, the price protection's not two-thirds. It's not as much as Mark.
No, not as high. In the specialty business, you do have some contracts which are of longer duration, but they frequently have a pulp index in it, which is reviewable after six months. It's certainly not two-thirds. It's about a third, I would say.
Okay, fine. Thank you. Steve, if I may just ask a question on Saiccor. You referred to this project as phase 1, and presumably there are phases beyond that. Could you just give us an idea just what you guys are thinking at the moment, not necessarily committing to it, but just in terms of what's possible for later phases?
Yeah. We're applying for environmental approvals for the full 250. We anticipate that in 2 phases. We have short-term demands from our customers, that extra 110,000, combined with all the other volumes we talked about, would be enough to meet our short-term requirements. Clearly, as we get beyond 2020 and we look out towards 2025, we are going to need significantly more volumes to serve the market. Saiccor, by at least getting the upfront environmental approvals, we'll be in a position to expand when the need arises. The other thing I should stress, and I'll allow Alex to expand further, the one thing I should stress is the wood supply. We have enough for the 110,000 that we're adding. As more and more of our forests are converted from softwood to hardwood, we will have more volumes in the future. Alex?
Thanks, Steve. I think the key is the woodyard investment that we're making and also the phase 1 puts in the basic building blocks to be able to then quite easily increase to the second phase, to up to the 250,000 tons. It will really be based on when we have the timber available.
Yeah. We'll time that second one. It's difficult to put a date on it, we'll time that second one, obviously mindful of the capital constraints that we have and also the customer demand. I stress to you that our focus is meeting the short to medium-term needs.
Excellent. Thank you very much.
Thank you very much. The next question is from James Twyman of Prescient Securities. Please go ahead.
Yes. Thank you very much. Yes, I've got two questions. The first one is just on the U.S. business again. We see Verso announced a $40 a ton increase for March, and you just said that you followed, which is obviously good. I understand this is only for the web grades, and I'm just wondering why the sheet grades are struggling to achieve the same sort of increases, and what sort of percentage of your sales are sheets? I think it's something like a quarter, but if I could get some sort of specifics on that. Secondly, on the price increases in terms of the delays.
What you're saying is that the price increase in January, which apparently has all gone through, only a third of your business is actually receiving that now, and the rest of it has delays that last throughout some of the rest of the quarter.
Mark, do you want to take that?
Well, first, we're about 300,000, 400,000 tons of sheets in our business. That's the size of our sheet business, and then the rest would be web. In terms of the delays, when you announce a price increase, there will be some customers that will have varying levels of delays from that price announcement. As I said, there's a fair amount that moves right immediately with that. You'd have to go back and look at the timing of our announcements and then figure out from there when they're moving. We've seen quite a lot of the traction come through for the pricings for the announcements in July and October, and then we just announced another one last week.
There was an increase for January that I think you had, and then there's another one for March that you're planning. Is that right?
Right.
That's right.
What's the issue with the sheet grades? Why are you struggling to get the same sort of speed of increases through there? Is it just because the importers are being more difficult, or is it the customers?
I wouldn't say we're struggling to get anything through. We've announced a price increase on sheets, and it's gone through. Sheets are sold to, in our case, they're sold mainly through merchants, and the merchants takes it from there and moves it on to the final customer. So far, on the sheets side of our business, we've been managing it and are comfortable with where it is.
Could you explain the same increases?
Yeah, we're seeing increases both on sheets and web.
On sheets and web, yes.
Okay. Thank you.
Thank you very much. Ladies and gentlemen, a reminder. If you wish to ask a question, please press star and then one. Our next question is from [Ross Krieger] of JPMorgan. Please go ahead.
Hi, guys. Thanks very much. Two quick questions from me. Just on the CapEx plans, are you still comfortable with your guidance on leverage and the increase in your payout ratio on the dividend? The second one's just on DWP swing capacity, if you could maybe give an estimate of what the price differential is currently between paper pulp and DWP. Perhaps if you'd be willing to venture an estimate on how much of that swing capacity is currently making DWP.
Well, on the CapEx, we've given you our numbers in that earlier graph, what we believe our CapEx will be, and we've even obviously reflected the impact of the Saiccor expansion. We're still committed to our dividend policy. We believe that we can still pay the dividends that we've committed to and have this CapEx. We are comfortable with that. On the DWP swing. Look, clearly with hardwood pulp prices where they're at, it's more favorable to make hardwood pulp. You have commitments to your customers, and these are long-term contracts. You can't back out of them. Yeah, there's short-term market dynamics, but as things currently stand, hardwood pulp is more favorable. In terms of swing, I think we gave it on an earlier page. I think it was 70,000.
Right.
70,000 hardwood pulp, the balance dissolving.
Sorry, Steve, just for the market as a whole, I don't know if you're able to estimate on that, but I'm wondering in terms of the entire market of DWP swing capacity. The 2.5 million odd tons that can swing.
Yeah. Look, some of that swing is fluff as well. We estimate that quite a big chunk has now moved away from dissolving pulp. Mohamed, are you on the line?
Yes, I am, Steve.
You want to just expand a little bit further there?
Yeah. In China, there's one big mill that has swung out of DP and into paper pulp. That's about 200,000 tons. There's another mill also in China, it normally has a capacity of about 100,000 tons of DP. What they are doing actually is not bleached. They haven't swung to bleached softwood kraft pulp, but they've swung to unbleached kraft pulp, which currently is even tighter than bleached softwood kraft pulp in China. That's 200 plus the 100. That's currently around 300,000 tons of DP capacity that has swung out of DP into, let's say, paper pulp production.
Plus our own 70. I know without naming any competitors' names, but I know that some of the fluff players are out of dissolving pulp as well. It's hard to give a specific number, but you can hear from our feedback there's quite a bit of it now moved away from dissolving pulp.
Okay, great. Thanks very much.
Thank you. Our next question is from Detlef Winckelmann of Arqaam Capital. Please go ahead.
Hi, guys. Just two questions from me quickly. Just regarding the EIA approval on the Saiccor expansion. What would you see as the risks to getting that approval? If the approval does not get granted, what are the alternatives from there?
Okay. Alex, do you want to talk about the EIA?
Yes. I think in terms of the risks, really an issue in terms of how long it takes. Certainly, there are benefits from an environmental side, from a cost side, and from just a revenue and a tax base. I think it's really just an issue in terms of the speed of achieving that.
Yep. Our guys are confident, but we've got to go through the process, which we'll be doing over the next few months. In terms of alternatives, we continue to scan the external environment, as I talked about earlier. Clearly, I wanted to focus or we wanted to focus on things that we can influence, and that's why we're prioritizing the internal initiatives first.
Okay, got it. Just similar to, well, same on the Saiccor expansion, just will there be any EBITDA impact, any capacity impact to other capacity? Just perhaps a ROIC target on the expansion?
The EBITDA impact of a shut, was it?
Of the expansion.
Yeah. Look, we don't want to give specific hard numbers, but assuming it comes through, the payback is less than five years.
I think maybe just to comment, it drops our cost base.
Yeah.
Base of the mill.
Yeah. It also reduces our variable costs, and it helps on our environmental footprint.
All right. Thanks very much.
Thank you. The next question is from David Drew of Bank of America Merrill Lynch. Please go ahead.
Hi, guys. Can you hear me?
Yes.
Yeah. Great. Thanks. Just a couple questions. I think firstly, on the Saiccor expansion. For the first 110,000 tons we can sort of back out CapEx intensity. Would the balance of the 250,000 tons be of similar sort of CapEx per ton? Secondly, of the balance, you mentioned that you're going to be sourcing hardwood fiber from your converted plantations, but is that the only source that you are going to be procuring from? Just lastly, on North America, what led to the production challenges that you faced during the quarter? Thanks.
All right. Thanks, David. I'll take the first one, then I'll let Alex expand a little bit further on the wood supply. The phase 2, to get it up to the 250, we would estimate that the cost would be lower than this phase. Really, it's just the timing of we've obviously got to secure the timber, we've got to have the capital available to invest, then obviously the customer demand. Alex, just want to talk about the wood.
On the timber wood, yes, our conversions will contribute a substantial part of it, but there's quite a lot of wood that's still being exported out of the country, and we've been quite successful in terms of closing contracts with some of those companies, and we're quite confident it will grow our contractual relationships with them. We're not concerned about the wood availability.
We're certainly very confident of the additional 110 now.
Yeah.
We're looking at the longer term to get the full 250.
In the worst case, we will have enough timber available just through our further conversions to actually supply it without entering into further contracts. We are confident we'll be able to close further contracts.
On Mark, do you just want to talk about the production?
Sure. Thank you. Well, really two events happened during the quarter. The first one was in Cloquet, where we actually planned to replace the headbox and did so, but going into that outage, the machine ran quite poorly and we had some production problems going into the outage. We got the headbox replaced, and it's run very well coming out of that outage. The other, more major issue we had was a pH problem in our boiler feed water at Somerset, which required us to shut down the entire mill and flush the boilers out. That cost us approximately five paper machine days to do that. That's behind us, mill's back up, no damage was done, no problems. That event, unfortunate as it was handled very well and is behind us.
David?
Thanks, guys. That's all. Thank you.
Thank you very much. Ladies and gentlemen, a final reminder, if you wish to ask a question, please press star and then one. Our next question is from Wade Napier of Avior Capital Markets. Please go ahead.
Hi, guys. Thanks for the time here. Just back to the sort of paper price increases. We've seen sequential price increases across Europe since April, but, if I look at your slide pack on slide 30, your sort of price per ton that you're actually realizing. Last Q1 2017 was EUR 694 a ton, now it's EUR 695 a ton. I'm not seeing any evidence of price increases. Could you break down what's happening in product mix, potentially sort of increased export sales, something along those lines? Secondly, could you just sort of provide some color on what's going on with the cash taxes and what we can expect for cash taxes going forward? Finally, just on your capital allocation thoughts. Obviously, you are looking to grow the DWP business in line with demand from end users.
As I understand it, the SA packaging business, we're talking kraft paper here in Ngodwana here is extremely high return stuff. Are you potentially jeopardizing project growth in the SA packaging business to grow at Saiccor here?
We'll take each of those questions. I think Alex is smiling here because you can imagine everybody's making a play for as much CapEx as they can get. Yeah. Let's take each one of them. Again, I'll let Barry expand further. On the pricing graph, just remember, again, you've got big currency impacts and exports at play here, so Barry.
Very briefly, the prices were still on a downward trend until March of 2017. They started to recover from April onwards. The first pulp price increases started to happen really in January of 2017. They've been steadily going up since then. The prices went to below to $695, and they started to recover. The second big effect was a 20% change in the value of the dollar against the euro in that period of time. Our dollar exports were going down very quickly, and we had to put through several price rises just to get back to where we were in euro terms in our dollar price business. We also had reductions in the U.K. pound as well as the Swiss franc as the euro got stronger.
We had a number of exchange rate issues that we had to compensate for by price rises in those countries.
Yep. Thank you, Barry. Glen, do you on the cash tax?
Yes. On the cash taxes for our 2017 fiscal, we had $100 million of cash taxes. We anticipate that will reduce by about 25% into 2018. A lot of that has got to do with the timing of our year-ends. From then on out into 2019, 2020, as and when our CapEx projects come up and we get accelerated depreciation allowances to reduce further from there. Okay. Thank you. On capital allocation, you're right. It's a big part of our job as management and where we focus a lot of attention. Clearly, dissolving pulp is a major part of our business, and we have opportunities to grow. Our expansions are not just about growing, it's about protecting our position, our existing business. We have very close relationships with our customers and we want to serve them.
I've said it many times, but we don't want to allow anybody else to take that business away from us. Yes, we have to look at the returns, and the returns are very attractive for the expansion opportunities that we're pursuing. With regards to South Africa, you're right. We do have exciting prospects for growth. In the very short term, as I say, our priority has to be to expand at Saiccor. Alex, do you want to add to that? Yeah.
We have some minor capacity improvement, debottlenecking opportunities, which we'll obviously pursue at both Tugela and it's in Ngodwana on the container.
Yeah. The two mills, Alex can expand further, but the two mills is obviously in Ngodwana and Tugela, and they're both operating extremely well and pushing new records and we continue, as Alex says, if we can boost production further and take advantage of the market, we'll look to do that.
Okay, great. Maybe just a final follow-up question. With regards to sort of external growth opportunities in DWP, are you still negotiating with the potential seller of the mill, or has that all sort of collapsed and you're now gonna focus the majority of your attention on internal for the next two years?
No, look, we're not in negotiations to buy a mill at the moment, no. We continue to scan the environment, you'll appreciate that the world has changed significantly over the course of the last six or nine months. A year ago, there was potentially paper mills with pulp assets that were in distress. With pulp having run so hard, the situation has changed considerably. We're not in any negotiations at the moment. As I say, we're focusing on what we can control, and that's our internal initiatives.
Okay, great. Thanks, guys.
Thank you very much. Our last question is from Senan Kiran of Muzinich. Please go ahead.
Hi there. I'm on slide nine, your CapEx chart. I'm just trying to put numbers on these bars. It feels like the Saiccor expansion for 2019 is $150 million that you're planning to spend if you get the approval. Is that right?
No, the other thing that we've added, in the 2019 year, the expansions, it's about $100 million on that number. I realize we're rounding the numbers here. We've obviously rounded them, but it's about $100, Alex, in the 2019 year. Obviously, the other thing we've added to our previous quarter is the Cloquet debottlenecking. There's a little bit this year and a bigger chunk next year also in the 2019 year.
Okay. For 2019 in this gray bar, $100 million belongs to Saiccor. Is there anything that you need to spend in 2020 on that expansion for the first 110 kiloton?
Yeah, look, in total, over the two years, it's $200 million. The expansion, the increased capacity.
Slightly less with that.
You said that.
Yeah.
For the phase 2, you said it will be lower than this $200 million.
Yeah. That's some way out. That's not in our near-term plans.
Okay.
That could be a few years out.
Given these expansions and de bottlenecking projects you are doing at the moment, your maintenance CapEx, is that likely to go up from the, for example, 2018? I think that's like $120 million number.
No, we don't expect it to go up. It tends to range between $120 million-$150 million, and we would expect that going forward.
Okay. Lastly, on your capital structure, obviously you have more than $600 million of cash on your balance sheet. I understand there are some projects coming up that you might spend this money on. There are no maturities this year, as you mentioned, Steve, earlier. Your bond, 2022, it becomes callable in April, and historically you have been quite proactive when it comes to your capital structure. Are there any plans to do anything with these bonds?
Not at this stage. Our focus is obviously on these projects that we talked about. Clearly, we'll watch the markets, and if an opportunity presents itself, we would look at it. It's not a high priority for us at the moment.
Thank you very much.
Thank you very much. Gentlemen, we have no further questions in the queue. Do you have any closing comments?
Thank you everybody for joining us on the call. We look forward to our next results announcements in three months time. Thank you very much. Bye-bye.
Thank you very much, sir. Ladies and gentlemen, that concludes this conference call. You may now disconnect.