Good day, ladies and gentlemen, and welcome to the SAP Limited First Quarter 2018 Results Conference. All participants are currently in listen only mode and there will be an opportunity for you to ask questions later during the conference. Please also note that this call is being recorded. I would now like to turn the conference over to Mr. Steve Meny.
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 number so that you can follow me as I go through. And I'll start on page 4 of our investor presentation deck, and it's some of the highlights for the quarter.
EBITDA Excluding special items was $172,000,000. That's comparable with the $181,000,000 last year on a like for like basis. As you know, we had an extra trading, which accounted for about $20,000,000. And that leads into the second bullet point, our profit for the period, the bottom line was $63,000,000 versus $90,000,000. In addition to the 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. So 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. And then net debt was 1,000,000 dollars, $349,000,000.
That's basically flat on last year, which was $138,000,000. And that's despite the fact that the euro is significantly stronger against the dollar than it was a year ago. And we estimate that on the debt number because a lot of our debt is denominated in euros. That was about just over $100,000,000 impact just on currency moves. Turning to page 5, some of the key ratios, and 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 two times level.
This quarter was 1.8. EBITDA per percentage was, lower than a year ago at 12.9. And that comes back to some of the factors that we talked about in our results announcement, but mainly the currency the currency move. The rent is stronger. So the South African earnings, was it was adversely impacted by the currency?
Did have lower volumes on the dissolving pulp side and lower pricing as well versus the prior year. And taking that into an earnings bridge on Page 6, this shows 17 quarter 1 versus 2018. And we didn't back out the extra week on here because it's embedded in the numbers, but clearly that's a big part of the the first item that you see there, the sales volume decrease, you've got 1 less trading week, although volumes were were less, on dissolving pulp, as I mentioned. And in the U. S, we had, some extended shuts for the project work that we're 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. But 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 $2 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. And in the far right, you see exchange rate, which is a small positive, the best of translation impact, from currency conversions. Moving to Slide 7, and we did commit to you that we would now separate packaging and specialties 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. And the paper now split into the two segments being printing and writing 35 and the packaging and speciality 16. So we're making good progress here. And 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.
And over time, we've set our target there of 25 from each, each segment. The maturity profile of our debt is reflected on, page 8 We are we don't have any major debt maturing that the green bar that you see on the 2018 year, it relates to, the South African securitization. But other than that, there's nothing there's nothing material, and it's looking pretty good. All our Eurobonds you can see are from 22 onwards. Turning to Page 9 is our CapEx.
And you can see the historical analysis, but in 2018, the number that we're reflecting there is 500. You may recall from the prior quarters, we talked about 4.50. It's a little bit higher. And again, on, there's a bit of currency at play there. Because of the stronger end and euro, and we have projects obviously in those regions.
And then 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 and 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, which is 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.
And we thought it was important to show you the impact on the CapEx if we do undertake the project. Moving forward then into our project our product segments. And 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, has been less competition on the Asian side in China. And, 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 2 smaller players coming out. And that's taken 15% of supply out of the market. And again, it's 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 the 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 are we've been successful, but it's important to stress that there's 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. So it's having 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, we expect to complete the conversions to, to specialities, 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. Then turning to 12, this is on the specialty and packaging side. Very encouraging.
We've and I'm sure all of you will have seen this. There's a significant pickup on in global sentiment and legislation towards replacing plastic packaging with paper. And that's creating good opportunities for us. And then you know, 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% 5%.
And it's really looking very good to the opportunities they're relying ahead. In South Africa, specifically on the virgin containerboard packaging, very good quarter. Excellent. And demand has been strong. On selling prices, again, look, we've got raw oil prices going up.
So we have to offset that. So there has been price increases there. And the euro The euro does have a little bit of impact on our numbers because some of it's exported and is priced in dollars. So when you convert that back to to euros, you do have a little bit of an adverse impact. Clearly, we will with all the opportunities that are out there, we look to complete the conversions that we've announced.
We've got the acquisition of Calm, which, we announced during the quarter and will be completed during February. And that's going to further expand our capacity and hopefully take advantage of the opportunities. Then on Slide 13 is dissolving pulp The overall market for dissolving pulp continues to be good. Continues to rise, interestingly ahead of our our long term expectations, we've always talked about 4% 5%. It continues to be above that.
So it's a good space. On the capacity side, the supply side, yes, 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, but, 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 resin cotton prices have moved above, above dissolving pulp. So all of these are encouraging for for pricing in the short term. And as I mentioned earlier, with pulp prices, paper pulp prices being high, again, further underpins pricing in this market dissolving pulp. We continue to focus on being an amongst the lower cost producers.
We've got debottlenecking opportunities, which I will talk about in some more detail on a later slide. And then on Saiccor, we, 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. And 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. And the graph that you see on the top right is just shows you the relationship on the between hardwood pulp prices, the blue bar, and one of our product categories are selling prices. And 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.
So we'll continue We'll continue to push that up. It's important to stress these are prices in euros. So you may wonder why is the the blue bar gone down a little bit, in the last couple of months, but this is euros because obviously a stronger euros 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 We're up 9% in terms of volumes year on 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 and brew star packaging volumes. So that will create opportunities for it to rise further.
Fixed costs were well managed. Then in North America, on Slide 15, we we've got a number of capital projects underway, in the U. S. Clearly that 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. And we put in a new head box at the cloquet mill as well, which impacted on volumes at that mill. And then we had some smaller production challenges. So all of those meant volumes were lower than a year ago. Obviously, I should stress all the numbers that you see, in terms of volumes and sales do contain an extra week from 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. You have price in some of your contracts, you have price protection and it takes time to ramp up, but 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. And like Europe, we've just announced a further increase. So we would expect that to go up even further as we move through the rest of the year. 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 $6,000,000. Moving to South Africa on Slide 16. Firstly, on the packaging side, a really strong quarter. And, 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 business 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. And to my point earlier, you can see that January, sorry, October to January 17 or October to December 17 or slightly or below, a year ago. However, they were still at pretty good levels. And the graph you see on the far on the far right of the graph, you see it clicked down, but subsequent to this, it started moving up again, as I mentioned earlier.
So the short term outlook is pretty good here. A lot of good work done in South African costs, and, we will continue to focus on that. Clearly, the big the big headache for us at the moment in the short term is the stronger rent. And, we manufacture in rents and we sell in dollars. So it does have an impact on rents.
But if you convert the profitability of the South African business back into dollars, we are up on a year ago. Then moving to strategy and the 4 pillars of our strategy, And the first one being cost on the cost side, page 18, We are 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 and we've targeted another $60,000,000 this year and the guys are working and 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 we have talked about them in the last quarter, but we've got the Saiccor mill, woodyard upgrade, and that's getting us ready for the expansion that I talked about, and capacity. And we're putting in a new, or we're upgrading the PM9 at Grakon for 30,000,000.
Then on to Slide 19, the rationalization of declining businesses, Although markets have improved for graphic paper, clearly, over time, we would still expect demand to decrease. And we 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 to from graphic to or Somerset PM1 in Maastricht from graphic paper to packaging. At the same time, we, at Lanaken, we're getting out of mechanical paper and into coated woodfree.
So that will reduce our exposure. A little also a little bit of volume work being done at mill and stock that as well actually in time. So we will progressively reduce our exposure here. Then on Slide 20, the balance sheet side, a commitment on our part to be guided by the 2 times EBIT EBIT 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 that annual saving So you'll still get some of the year on year impact in the current year. And overall the finance costs, we estimate there's $60,000,000 to $17,000,000. Turning to accelerating between growth in our high margin products on page 21. And I've talked about it a few times on this call already, but we see big opportunities obviously on dissolving pulp and specialities in packaging. And that's where we're investing our CapEx.
Psycho, cloquet and in Goodwana, all have debottlenecking projects underway and we've got some numbers on the next slide. So I'll I'll I'll I'll refer to that just now. On the specialty packaging side, the the small Rockwell technology acquisition that we did last year gives us access to barrier technology, which our customers are pushing us for and the push from or the shift away from plastics to papers that the timing was just perfect for that to acquire that technology. And obviously, the acquisition of Calm, right in the space where we want to be and where the markets are growing. In South Africa, I talked about the good performance and our Nung fujuana and Tigala Mills, in time, there's opportunities there to grow further there.
And 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, and 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. And we can't rely on getting external assets.
So we have to focus on what we can control. And with that in mind, we We've got the projects underway, for debottlenecking cycle will give us an extra 10 this year. Similarly 50,000 from in Goodwana and 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 and then the Saiccor potential expansion that I talked about. We'll go through the environmental process.
If that all comes through, we believe that that volume will be available to us in 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 and clearly beyond 2020, we would expect volumes to continue to grow, but this solves our short term challenges. The, moving to the outlook, and that's my last slide on page 24, dissolving pulp demand, as I said, good. And 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. But 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 summer and then I talk about it thereafter. Maastricht is actually now complete. We've done the work that's in Q2, and that was successful, and we're very excited about about that opportunity. And now the Somerset 1 that's coming up soon will be completed by the time we're in the third quarter. The Calm acquisition, all the major conditions of, basically being fulfilled, there's 1 or 2 minor things, which will come through in the next few days.
And then we expect that transaction to close at the end of February, and then that will be integrated in the business there going forward from that date. Our CapEx, $500,000,000, I talked about earlier, and it's for all the projects that I've I've emphasized. And in 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, the, the, the RAN is moving against us in the short term, but, we're feeling pretty confident about our outlook statement that we've given to you. So that's my presentation.
Operator, I'm going to put it back to you for questions.
Thank you very much, you. Our first question is from Brian Morgan of RMB Morgan Stanley. Steve,
if you could maybe give us a little bit more color on the pricing lags between, the Peppa 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?
Yes. Look, as you saw from those graphs earlier, it's been a series of price increases. There's typically, and I'll put you to Mary and Mark just now. Is typically about a 3 month lag, as you move through each quarter. We started increasing prices in Europe, for example, Barry, I think it was April last year.
And each quarter thereafter, we've been doing that. You can see on that earlier graph have been maintained, but every time the pulp goes up, we have to put through another increase. And Barry, do you want to expand a little bit further? Or we've just announced another one, haven't we?
What the case is that the pulp prices move up every month. And so we've had 11 pulp price increases since the beginning of 2017. And we really can only move the, the paper prices every quarter at best. In fact, for the publishing price, publishing papers, we can So there is always a time lag. On the whole, what's what's what you say Steve is absolutely right.
It's about a quarter behind.
But 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?
Very similar to what Barry just said about his environment in Europe. Roughly about 2 thirds of our business has some form of, 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 a price, another price increase, last week as well. Yes.
Okay, that's great. So I'm sorry, Barry, would you say that's a similar number for you in terms of that 2 thirds split?
The price protection is not 2 thirds. It's not as it's not as much as No, it's
not as high. There is 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 6 months. So It's certainly not 2 thirds. It's about a third, I would say.
Okay, fine. Thank you. And Steve, if I may just ask a question on cycle, 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 on this area? You're committing to it, but just in terms of what's possible, for later phases
Yes. We're applying for environmental approvals for the full 250. We anticipate that in 2 phases. We have short term demands from our customers and that extra 110,000 combined with all the other volumes we talked about would be enough to meet our short term our short term requirements. Clearly, as we get beyond 2020 and we look out towards 25, we are going to need significantly more volumes to serve the market and Saiccor, by at least getting the upfront environmental approvals, we'll be in a position to expand when, when the need is when the need arises.
The other thing I should stress and I'll allow Alec to expand further, but the one thing I should stress is the wood supply. We have enough for the 110,000 that we're adding. And as we more and more of our forest converted from softwood to hardwood, we will have more volumes in the future. Alex? Thanks, Steven.
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 or the second phase to up to the 2 £50,000. It will really be based on when we have the timber available.
Yes. So we'll time that second one. It's difficult to put a date on it, but we'll time that second one obviously mindful of the capital constraints that we have, and also the customer demand. But, I stress to you that our focus is meeting the short to medium term needs.
Thank you very much. The next question is from James Twaman of Priscan Securities. Please go ahead.
Yes, thank you very much. Yes, I've got two questions. The first one is just
on the US business again.
I we received Verso announced a $40 a ton increase for March, and you you've just said that you've 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 a sheet. So I think it's something like a quarter, but if I could get some sort of specifics on that. And then secondly, on the price increases in terms of the delays, So 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, we're about 300,400,000 tons of sheets in our business, that's the size of our sheet business. And then the rest would be web. And in terms of the delays, when you announce the price increase, there will be some customers that will have varying levels of delays from that pricing announcement. And then, as I said, there's a fair amount that that moves right immediately with that. You, you have to go back and look at the timing of our announcements and, and then figure out from there when, when they're moving, we've seen quite a lot of the traction and come through for the pricings for the announcements in July October, and then we just announced another one last week.
So that 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? And 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 having we're struggling to get anything through. We've announced 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 takes, takes it from there and moves it on to the final customer. And, so far, you know, on the sheet side of our business, we're we've been managing it and are comfortable with where it is.
So can you see the same increases?
Yes, we're seeing increases both on sheets and web.
On sheets and web, yes.
Okay. Thank you.
Thank Our next question is from Ross Kricker of JP Morgan. Please go ahead.
Hi guys, thanks very much. Two quick questions from me. Just on your on the CapEx plans, are you still comfortable with your guidance on leverage and the increase in your payout ratio on the dividend? And the second one is just on DWP swing capacity. If you could maybe give an estimate of what the price differential is currently between paper pulp and DWP.
And perhaps if you'd be wanting to venture an estimate on how much of that spring 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 the Saiccor expansion, and 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. So we are comfortable with that. On the DWP swing.
Look, clearly with the hardwood pulp prices where they're at. It's more favorable to make hardwood pulp. But you have commitments to your customers. And you can't you can't these are long term contracts. You can't back out of them.
So that'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. 70,000, sorry, 70,000 hardware pulp, the balance is
Steve, just for the market as a whole, I don't know if you're able to to estimate on that, but I'm wondering, in terms of the entire market of EWP swing capacity, so the 2,500,000 odd tonnes that can swing?
Yes. Yes. Look, some of that swing is fluff as well. We estimate, that, quite a big chunk has moved away from dissolving pulp. Mohammed, are you on the line?
Yes, I am, Steve.
You want to just expand a little bit further there?
Yeah. There's in China, there is a fair there's one big mole that, has swung out of DP and into paper pulp. That's about 200,000 tons. The there's another mill also in China. It normally has a capacity of about 100,000 tons of DP.
And what they are doing actually is not bleached. I haven't swung to bleeds Softwood paper pulp, but they've swung to unbleached kraft pulp, which currently is even tighter than bleach softwood paper in China. So 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 and I know without naming any competitors' names, but I know that some of the fluff players 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 a now move moved away from dissolving pulp.
Thank you. Our next question is from Detlefinkelman of Hakum Capital. Please go ahead.
Hi guys. Just two questions from me quickly. Just regarding the EIA approval on the cycle expansion. What would you see as the risks to getting that and if the approval does not get granted, what are the alternatives from there?
Okay. Do you want to 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. So, I think it's really just an issue in terms of, the speed of achieving that.
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 alternative, we continue to scan the external environment as I talked about earlier. But 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. And then just, similar to well, same on the cycle expansion. Just will there be any EBITDA impact, any capacity impact to other capacity? And then just perhaps a ROCE target on the expansion?
The EBITDA impact of a Shoppe, was it?
Of the expansion?
Look, we don't want to give specific hard numbers, but assuming it comes through The the the payback is less than 5 years.
I think maybe just to comment, it drops our cost base.
And 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.
Great. Thanks. Just a couple of questions. I think firstly, on the cycle expansion, for the first 110,000 tons we've been sort of back out, back out CapEx intensity. With the with the balance of the 250,000 tonne be of similar sort of CapEx per tonne?
And then secondly, of the balance, I mean, 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? And then just lastly on North America, what led to the production challenges that you faced during the quarter? Thanks.
All right. Thanks, David. On I'll take the first one and then I'll let Alex expand a little bit further on the wood supply. The second phase to get it up to the 250 we would estimate that the cost would be lower than this phase. And it really is just a timing of We've obviously got to secure the timber.
We've got to have the capital available to invest. And then obviously the customer demand. Alex, just want to talk about
on the timber con, would Yes, our conversions will contribute a substantial part of it, but we, there's quite a lot of wood that's still being supported 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. So we're not concerned about the wood availability.
We're certainly very confident of the additional 1.10 now. And then we're looking at the longer term to get the full 250.
Yeah. And that's, in the worst case, We will, have enough, timber available just through our further conversions to actually supply without entering into further contracts, but we are confident we'll be able to close further contracts.
And then on Mark, did you want to talk about the production
Thank you, Steve. I can do that. We're really 2 events happened during the quarter. The first one was in cloquet where actually plan to replace the head box and did so. But going into that outage, the machine ran quite poorly and, and, we were we had some production problems going into the outage.
We got the head box replaced, and this run very, very well coming out of that outage. And the other more major issue we had was a pH problem in our boiler feedwater at Somerset. Which required us to do, shut down the entire mill and flush the boilers out, and that that cost us, approximately 5 paper machine days to do that. That's behind us. Mill's back up.
No damage was done. No problems. And, that event unfortunate as it was, was handled very well and is behind us.
Yes.
David. Thanks guys. That's all. Thank you.
Thank you very much. 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, I mean, we've seen sequential price increases across Europe since sort of April, but if I sort of look at your slide back on Slide 30, mean, your sort of price per ton that you're actually realizing. I mean, last Q1 2017 or if year is a tonne now at EUR 6.95 a tonne. I'm not seeing any evidence of sort of price increases.
So could you sort of 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 can and what we can expect for cash taxes going forward. And then finally, just on your sort of capital allocation sort of thoughts, obviously, you are sort of looking to grow the DWP business in line with sort of demand from end users. But I mean, as I sort of understand it, the essay packaging business We're talking kraft Pepe out of Ingriduana is extremely sort of high return stuff. Are you potentially sort of jeopardizing sort of project growth growth in the sort of SA Packaging business to grow at sort of Saiccor here?
All right. 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, let's take each one of them. I'll again, I'll let Barry expand further.
But on the pricing graph, just remember, again, you got big currency impacts and exports at play here. So Very
briefly. The prices were still on a downward trend until March of 2017. So 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.
So, the prices went to below to 6.95 and they started to recover. The 3rd, the second big effect was a 20% change in the value of the dollar against the euro in that period of time. So our dollar exports were going down very quickly and we had to we had to put through several price rises just to get back to where we were in euro terms from in our dollar price business. We also had reductions in the UK pound as well as the Swiss franc as the euro got stronger. So we had a number of exchange rate issues.
That we had to, had to compensate for by price rises in those countries.
Yes. Thank you, Barry. Glenn, do you on the cash tax? Yes.
On the cash taxes, for 2017 fiscal, we had $100,000,000 of cash tax is. 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. And then 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 manage and where we focus a lot of attention. And clearly dissolving pulp is is a major part of our business.
And we, we have opportunities to grow but our expansions are not just about growing, it's about protecting our position, our existing business. And we have very, close relationships with our customers and we want to serve them. And, we don't have it many times, but we don't want to allow anybody else, to take that business away from us. So yes, we have to look at the returns. And at 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 its cycle. And Alex, do you want to answer that?
Yes. We have some minor capacity improvement, debottlenecking opportunities, which will obviously pursue it both together and it's in Gerdwanna on container.
And the 2 mills, Alex can expand further, but the 2 mills is obviously in Gudwana and together. 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 will look to do that.
Okay, great. And then maybe just a final follow-up question. With regards to sort of external growth opportunities in DWP, are you still negotiating with the potential sort of seller of them or has that has that sort of all sort of collapsed and you're now going to sort of focus the majority of your detention on internal for the next sort of 2 years?
No, look, we're not in negotiations to buy a mill at the moment. No. We continue to scan the environment. But you'll appreciate that the world's has changed significantly over the course of the last 6 or 9 months. A year ago, there was potentially paper mills with pulp assets that were in distress, but with pulp having run so hard, the situation has changed considerably.
So we're not in any negotiations at the moment. And 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 Siena Kieran of Museley. Please go ahead.
Hi there. I'm on Slide 9, your CapEx, chart. I'm just trying to put numbers on these bars. So it feels like the cycle expansion for 2019 is SEK 150,000,000 that you are 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 $100,000,000 on that number. And I I realized we're rounding the numbers here. You know, we've obviously rounded them, but it's about a it's about a 100 in the 2019 year. And obviously the other thing we've added to our previous quarter is the cloquet debottlenecking. So there's a little bit this year and a bigger chunk next year also in the 2019 year.
Okay. So for 2019 in the gray bar, $100,000,000 belongs to Saiccor. And is there anything, that you need spend in 2020 on that expansion for the first 110 kiloton?
Yes, look, in total over the 2 years, it's 200,000,000 the expansion, the increased capacity.
Okay. And you said that.
And for the 2nd phase, you said it will be lower than $200,000,000.
Yes, but that's some way out. That's not in our near term plans. That could be a few years out.
And given the these expansions and the 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 $120,000,000 number
No, we don't expect it to go up. It tends to range between 120 to 150. And we would expect that going forward.
Okay. And lastly, on your capital structure, Obviously, you have more than $600,000,000 of cash on your balance sheet. I understand there are some projects coming up that you might spend this money on. And the but there are no maturities, this year, as you mentioned Steve earlier, but 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. I mean, our focus is obviously on these projects that we talked about. Clearly, clearly, we'll watch the market. And if an opportunity presents itself, we would look at it, but It's not it's not a high priority for us at the moment.
Gentlemen, we have no further questions in the queue. Do you have any closing comments?
Just thank you everybody for joining us on the call and we look forward to our next result announcements in 3 months' time. Thank you very much. Bye bye.
Thank you very much, sir. Ladies and gentlemen, that concludes this conference call and you may now disconnect