Ladies and gentlemen, good day, and welcome to the SACI Limited Q2 FY 2017 Results Teleconference. All participants will be in listen only mode. There will be an opportunity for you to ask questions at the end of today's presentation. Please note that this call is being recorded. At this time, I'd like to turn the conference over to Steve Binnie.
Please go ahead, sir.
Thank you. Good day, everybody. As per prior quarters, I'm going to go through the presentation deck and I will call out each page number as I move through. Starting on Page 4, the highlights for the quarter. Firstly, EBITDA Excluding special items up nicely from last year's $195,000,000 up to $208,000,000 this year.
The profit for the period did come down from 100 to 88. The reason for that was positive fair value forestry adjustment last year, which clearly is non operating, and that did not recur in the current year. Earnings per share, excluding special items, up from US0.16 dollars to US0.17 dollars. On the net debt front, we continue to make good progress, down $323,000,000 year on year. To $1329,000,000 at the end of March Turning to Slide 5, the some of the key financial metrics for us, and you can see across the board, we've been making significant progress.
Perhaps one of the most particularly pleasing results has been the improvement of our return on capital employed. And you can see over this period, it's it's now improved from 13% in 2015 and now above 20% as in the current quarter. Turning to Slide 6, our earnings EBITDA bridge from last year's quarter to this year You can see that we were positive on most of the dimensions, particularly on the the selling prices, and that's on the back of the improved dissolving pulp prices versus a year ago. And those markets have been strong. We managed to mix some savings, further savings on costs.
You see that flowing through both on variable and fixed. And then The negative is the impact of exchange rates and that predominantly relates to the stronger rent versus a year ago. Roughly a year ago, I think it was about $15 to the dollar. It it's now, in the 13th. So that's had a significant impact on our numbers.
Moving to Slide 7. We have the EBITDA across the two segments that we report, you can see consistent with recent quarters on an EBITDA perspective, we are roughly, half, half, between specialized cellulose and paper. The paper includes both our traditional graphic paper, but it also includes specialities and packaging Of the 51 percentage points, 13% relates to specialities and packaging, and that's a a number that we would expect to grow in the quarters as we move forward. Moving to Slide 8 the evolution of our net debt and this tells a very nice story. You can see from the peaks in early in 2014, a leverage ratio of 4.6.
We're now all the way down to 1.7 and we continue to make progress on that front. And expect our net debt to decrease have our maturity profile for our debt, our long term debt. The key items to talk about here are firstly, the The blue bar in 2017 predominantly relates to our U. S. Dollar $400,000,000 bond.
And that was repaid, 400 was repaid in April. So that's no longer there. And then perhaps the other one to call out is the $302,000,000 securitization structure, which reaches maturity in 2018. We expect to roll that over in June of this year. So that will push out the maturity.
So you can see once that's done we have a very favorable maturity profile and some years before We have any significant debt maturing. Then to Slide 10, our CapEx development this year, $350,000,000 is expected. Some of that's coming through related to the South African debottlenecking projects, for dissolving pulp. And as we begin our specialty packaging conversions are at, Maastrichtandsummerset that also rolls into the 2018 and some of it into 2019. Where we expect the numbers, the CapEx to be approximately $400,000,000 in each of those years.
Moving forward then, turning to Slide 12, firstly, the global paper market trends. On the supply and demand, we continue to see weakness in in graphic paper markets. And clearly, that's had a significant impact on pricing over the last year or so and in this quarter, we continue to see closures perhaps less than prior years. Specifically in this period, we've seen further announcements of supercalendered closures, And, we are hopeful that we will see more capacity coming out as we move forward. The specialty side continues to be good.
And in the categories that we are and we see growth between 1% 5%. Selling prices, I've already talked about, have been under pressure, but in recent months, they have started to stabilize. And in fact, in Europe, we we announced the first round of price increases in effect of, in April and we've seen some of the benefit of that flowing through. And you'll have seen that we've recently announced further increases there effective from July. And really those are to offset the higher raw material prices primarily from pulp, Europe, just to remind everybody, Europe is about 55 percent integrated.
So we have to buy the rest of the pulp and clearly the big rise in pulp over the last few months will have an impact on margins. Our strategy will be to look for opportunities to convert packaging to packaging as we anticipate declines in demand for, for a graphic paper. And we've done a good job on the cost and we'll continue to focus on that front. Slide 13 specifically refers to Europe. The margins have declined because of the lower year on year selling prices, I've already said that we've announced some price increases and We're starting to see the benefits of that coming through, and the pressure we're going to get from variable costs, the pulp, and latex as well.
Specialty paper continues to perform very well. We're making good margins. And as we complete the conversions that that business will grow further. Then on Slide 14, they actually had a year on year improvement in profitability. And despite the fact that selling prices have been weak, albeit that they've stabilized in recent weeks.
The variable costs have were down year on year. And we continue to to make good progress on the efficiency projects that we have. The region also benefited from the higher dissolving pulp prices and our specialty business, albeit from a relatively low base, is starting to pick up momentum. Then to Slide 15, the global dissolving pulp markets, We've seen strong demand now over the last year and it continued into this quarter. Pricing was good.
Aligned to the prices for other textile fibers we believe that demand will grow and continue to grow at about 4% or 5% over the next couple of years. And if we look at the plan of new capacity from competitors that's coming on board, we think that, that will be the demand will be sufficient to meet that new capacity that's coming on board. Subsequent to the quarter end in April, prices have come back a little bit, but I want to stress that they are coming off a high base and and overall, the dynamics in this market are very good and positive as we move forward. We will continue to look for ways to maintain our low cost position. In the short term, we've got our deep bottlenecking projects, in South Africa, which can add up to $100,000 in the next couple of years.
And the name will turn we obviously need to turn our attention to longer term growth. Then onto South Africa specifically on Slide 16, margins were very good, obviously, on the back of dissolving pulp, higher dissolving pulp prices. And that happened that offset the impact from the stronger rent that we talked about earlier. The last quarter, we talked about some production issues that we had had at Saiccor. We had to shut in March and we believe that those won't will now be resolved.
They have been resolved as we move forward. So we can get back up to, maximum production at the mill there. The, on the containerboard side, volumes are good and are expected to continue to be positive as we move through the rest of the financial year. Turning our attention then to the strategy side. Slide 17 has the various pillars, and I'll talk to each of those in the slides ahead.
Slide 18, specifically on the costs, and you'll have seen in our numbers all the good work that we've been doing over a number of years and we continue to focus on this. Some of the smaller projects are outlined there, some turbines at Saiccor and Tagalog, the new woodyard at Somerset in the U. S. This is an ongoing process looking for opportunities. The procurement project that we've talked about in recent quarters is ongoing.
On track and we continue to believe that it will deliver at least GBP 100,000,000 by the time it's completed. Then on Slide 19, we've referred to this already, but we will look for opportunities to reduce our exposure to graphic paper. We recognize that it's in decline and We have opportunities to convert some of that capacity towards more growth markets, specifically on the specialty packaging. Obviously, we've made the announcements, to reduce our exposure at Somerset and Maastricht and Lanaken is getting out of lightweight, lightweight coated as well. So that all in all, taking that into account, that will with Tusa exposure.
And I just want to highlight, and then you would have worked it out from the numbers that I referred to earlier, but of our EBITDA now, only about a it's close to a third of our EBITDA now comes from graphic paper, and that will continue to come down as we get closer to our 2020 vision. Slide 20 has, talked about moderate investments and you see some, again, some of the examples of the work that we've been undertaking, the debottlenecking at Saiccor and in to boost our dissolving pulp, the investments in specialty packaging. We think that there are nice opportunities to grow packaging in South Africa at Nudwana and Together. One of the keys here for us continues to be securing additional hardwood, timber supply. And obviously that's predominantly for dissolving pulp, but it's also, for our entire for our business.
And so that's overall. Then Slide 21, just touches on a point that I referred to earlier, a return on capital employed. And you can see from the lows in 2013 of 5%, we continue to make good progress. On all the work that we've undertaken. And as we move into the next phase of our strategy, terms of growing dissolving pulp and our specialty packaging.
Clearly, this puts us in a better position as we evaluate these projects. The Slide 22 is the slide that we've shown before, but I'll just wanted to recap. It's just a reminder of the 2 conversions that we referred to. These projects have obviously commenced, and are progressing on track. So far, to remind you, we're spending $140,000,000 in Europe and we list the initiatives there, but specifically, it's going to give us more SBB and folding box board.
And then at Somerset, the $165,000,000 conversion at Somerset will again give us packaging, sorry, exposure to more of the packaging grades as well. And give us a ramp up to 350,000 tons. Slide 23. We've done a lot of good work on the balance sheet. As you saw from earlier slides, and that will continue to progress.
We refinance those bonds that will lower our interest bill going forward by another $20,000,000 $21,000,000, and we continue to look for ways to optimize our working capital. Then on Slide 24, as the balance sheet improves, we look for opportunities to to boost our growth in adjacent businesses. Obviously, Specialty Packaging, we've referred to a few turns and we do think that there are opportunities. And then on the dissolving pulp, we want to continue to grow We talk about the 100,000 short term, but we do think in the period to 2020, we are targeting a growth of about 300,000 tons and that's what we're working on at the moment. And then at the same time, on the byproducts.
As you know, we've commenced some pilot plants there and other exploratory in nature, but in turn, they could be quite lucrative. So turning to the outlook statement on Slide 26, I've already mentioned it, but dissolving pulp prices have come under pressure in recent weeks. But overall, the market looks favorable and demand is strong. So, the short to medium term as we look at 2 or 3 years, we are very positive about the prospects. The graphic paper markets continue to be weak.
Obviously exacerbated by the higher input costs. And we are offsetting that by the in Europe, anyway, by the price increases that we've announced. We will look for ways to grow our accelerate the growth in specialty packaging and the condes and projects are underway. They're around volatility obviously is a headache, and the fact that it's higher year on year but even at these levels, we remain very competitive in global markets. So based on the fact that the rand is stronger, we think that the earnings for Q3 might be slightly lower than they were a year ago.
However, the full year for 2017 will be better than 2016. So that's me gone through all the slides operators. So I'll put it back to you for questions.
Thank you, Our first question comes from Brian Morgan of RMB Morgan Stanley. Please go ahead.
Hi, guys. Thanks very much for the call. Just two questions from my side. We saw an announcement from Fortress Paper about a month or 2 ago that they had successfully appealed the antidumping duties that that the Chinese put against Canada to the WTO. I'm just wondering what the status is for you guys with cloquet, if you've seen something similar on your side?
No, we haven't challenged that specifically. Mark, do you want to comment on that?
No, Steve, other than what you just said, We haven't challenged it specifically yet nor have we seen or heard of any challenges from the North American from the U. S. Producers yet. But it does raise questions because of the way Fortress won their complaint puts that question the whole process, I believe, from what I've read.
So perhaps just to add, Brian, From a Sappi perspective, the fact that Fortress can get into those markets should not have as significant impact on our business because we're relatively lowly exposed to the Chinese market. In time, obviously, we're hoping it creates opportunities for us.
Okay. Cool. And then just talking about the lava and pulp supply and demand and you said that there's not a lot of capacity coming on in in 2017, 2018, which is great. Can you chat to us a little bit about longer term supply demand fundamentals? You talked in your release about a 4% demand growth rate, going forward.
Can you chat with us a little bit about supply and supply risks and how you see that unfolding over the next couple of years?
As we look out over the next few years, we think the dynamics are favorable. If we look at and we extrapolate the 4% or 5% growth out and we look at all the anticipated demand that's likely to come on board from competitors, we think the operating rates will remain favorable at which will be good for pricing in the market. So we don't think there's a significant risk associated with additional new capacity coming on board
Okay. It's just the reason I ask is, as February was talking in their conference call about converting one of their lines to dissolving pulp quite recently, And that sort of stuff can come on pretty quickly, can't it?
No, sure. Look, that's the first time they've mentioned that. Specifically the comment that you're referring to, what's quite speculative in nature and saying that they may look at it. And if I'm correct, they only refer to 200,000 tons.
Yes, that's right.
So, we don't think that's a material risk.
Okay, cool. That's great. Thank you.
We will pause to see if there are any further questions.
Okay. Operator, there's no more question. Is there more questions? No?
No, no further questions, Mr. Binney.
Okay. Look, if there's no more questions, we'll view that as positive. So I want to thank everybody for joining us today, and we look forward to discussing our next set of results at the end of Q3. Thank you very much.
Thank you. On behalf of SAPI, that concludes today's call. Thank you for joining us. You may now disconnect your lines.