Good afternoon, ladies and gentlemen, and welcome to the Sapiens Limited Full Year 2015 Financial Results Conference. Please also note this call is being recorded. I would now like to turn the conference over to Mr. Seepen. Please go ahead, sir.
Thank you and good afternoon to everybody. Today on the call, I'm joined by a number of my colleagues, including Glenn Pierce, the CFO, Barry Viacom, the CEO of Europe, Alex CEO of South Africa. Mark Gardner, our CEO of North America, is unfortunately traveling at the moment and then unable to join us on this call. I'm going to talk through the deck that we, is on our website and I'll call out the page numbers as we proceed through the deck. Moving to Slide 4, the highlights for the period.
Firstly, on the quarter, earnings per share Excluding special items was $0.16, up from $0.12 last year. EBITDA $201,000,000 compared to $200,000,000 last year. Importantly, profit for the period was $83,000,000 that was a 22% rise from the 68 that we achieved last year. Then in terms of the full year, earnings per share $0.34 compared to $0.22 last year. EBITDA was 6 2 sorry, $625,000,000 compared to $658,000,000 last year.
That short fall entirely related to the translation of our European results into dollars because of the weaker euro currency. Profit for the period was up 24 percent to $167,000,000 from $135,000,000 last year. And then our net debt continues to come down. We were able to bring it down a further $175,000,000 this year and end the year at $1771,000,000. Moving to Slide 5, the you can see the evolution of our EBITDA and operating profit over the last few years.
And as it's consistent with prior years, Q4 is our strongest quarter. It was once again this year. We were up on last year. The momentum was good in the quarter. And as we move into the new financial year, momentum is good in the business.
The EBITDA bridge comparing 2014 Q4 with 2015. You would imagine, the exchange rates suffered a significant impact. This is a dollar bridge. So as we translate our South African rand numbers and our euro numbers into dollars that has an impact on the group results. Firstly on sales revenue, it would clearly have an adverse impact.
But then on costs, we would benefit from that currency shift. Terms of sales volume, pretty good for the quarter. Volumes have been solid. Both in Europe and in North America, and overall a good quarter. We were able to put through some price increases in Europe.
And then in dissolving pulp, our prices have increased further as the year has progressed. Good work done on costs, also helped further and overall earning the year at for the quarter, $201,000,000
of EBITDA.
As a product contribution split, it's reflected on Page 7. This is the last 12 months. And you can see that, from an EBITDA perspective, paper contributes 55% and specialized sales, 45%. This is obviously reflective of the cash generation in the respective businesses and demonstrates that paper continues to be very important for us despite the fact that it may make lower margins than specialized sales. Operating profit, specialized sales had a very strong year and contributed 65% of the overall operating profit.
Moving to Slide 8, the evolution of our net debt. And you can see that post the acquisitions that we made in dissolving pulp in late 2013, early 2014, our jet peaked and we've seen it come down consistently since then. We ended the year 2.8 times net debt to EBITDA. And as we look forward to the new financial year, We expect it to come down significantly further towards our over time target of 2 times. Then on Slide 9, we have maturity profile of our debt.
And you can see that we don't have any material debt maturing in 2016. In 2017, we have the 2017 dollar bonds for $400,000,000 maturing. And obviously over the course of the next 12 to 18 months, we would look to potentially refinance that at at a lower cost. Then on Slide 10, the CapEx, ended the year around the $250,000,000 mark maintenance CapEx, also some of the efficiency projects that we undertook at, Grakon Somerset and Catmini. And those projects, we would look to get payback from as we move forward.
In 2016, we are projecting a similar level of CapEx, again, maintenance at the similar levels. The efficiency project that we are undertaking this year are predominantly in South Africa and the main one being, in the boiler at Inguwana, which is approximately $50,000,000. Turning to the divisions and I'll start on the paper side of the business and move to slide 12. Firstly, in terms of global market trends on the supply and demand, it's fair to say that the strong dollar has caused significant shifts in the trade flows. You've seen substantial increase in imports coming into the U.
S. Our European businesses has benefited from the weaker euro, and we were able to export more from the European region. Cote paper capacity continues to come out both in Europe and in North America. But with regards to Sappi, We, we haven't had to do that. Our mills have been pretty full as we end the year.
Our our mills are cash positive and the order book is full. Coated Woodfree has generally been in line with expectations. However, mechanical paper has been under significant pressure. In terms of selling prices, we have seen recent increases in Europe fee and mechanical paper. And we have recently announced a further price increase, to be effect from January and obviously, time will tell how successful we will be implementing that.
Oil prices have come down and that has lowered chemical related prices and fuel related prices. However, pulp prices for our European business affected by the fact that the euro has been weaker. Wood prices in the U. S. Were high throughout the year, but we have seen declines in recent weeks.
So hopefully, that reduces the pressure as we move forward. So overall, from a strategy perspective, we will continue to look for opportunities to take price increases when we can, but clearly, we can't rely on that. There's a strong focus on reducing fixed and variable costs across all the regions. And I think they've all done a very good job at being able to do that. And we will continue to look for opportunities grades where we believe that there is growth and higher margins.
Then turning to Specialized Salos on Slide 13. The, as you know, there are a number of swing mills out there, that do make pulp for the paper industry and dissolving pulp, quite a significant proportion of those have stayed in hardwood pulp for the paper industry as those prices have remained high. And that has benefited us. But at the same time, the underlying demand for dissolving pulp continues to be positive and the long term outlook is still good. Selling prices have steadily risen throughout 2015.
We saw further increases in Q4 and I'm sure you guys watch the spot markets post the year end. They have increased further. VSF prices have been rising. Cotton prices relatively stable. They did go down then they subsequently started rising a little bit in recent weeks, come back a little bit, but generally stable.
However, with oil being down polyester prices are under pressure. Input costs for the producers who have a non U. S. Dollar cost base have come down and obviously, sappy with with the South African mills have benefited from that. In terms of our strategy, we will continue to manage capacity in the South African environment, there could be opportunities to debottleneck and slowly increase our tonnage.
And then we continue to work with our key customers to support their growth strategies. We will continue to investigate other end duties and adjacent uses for the dissolving pulp. Then turning to the regions, and I'll move on to Slide 14, and we start with Europe. Overall, I think the Europeans have had a good year. The volume declines have slowed somewhat and during the last year or so.
Coated woodfree has been in line with expectations. We've talked on previous calls about a 2% decline and that has been the case throughout 2015. Unfortunately, mechanical paper is in a in the European environment is related to mechanical, 2 thirds coated woodfree. The good news is that operating rates at our mill are high. The order book is good and we were able to push through some price increases.
And as I said earlier, we have announced further pricing for January. Unfortunately, the pulp prices have risen considerably and that has put pressure on variable costs. Fixed costs have been well managed and are down year on year. I think one of the big highlights for the period has been the improvement in profitability for our specialty business. And we saw a substantial rise in earnings in that sector of our business.
Turning to North America. We know that Q2 and Q3 were tough. Q4 was better. The our order books did fill up and we were in a better position. At the same time, we were able to take further costs out of the business And I'm pleased to report that the profitability was higher this quarter than the same quarter last year.
Nevertheless, the market is still tough because of the weaker dollar and volume or demand is expected to to decline by at least 3% as we move forward. South Africa on Slide 16, we had a very strong year in South Africa, firstly on dissolving pulp We benefited from the fact that the order book was strong. Dissolving pulp prices were rising throughout the year, and that boosting profitability. And of see the weaker end further improved margins. Good work was done on costs.
With fixed costs down, and variable costs under control despite the fact that we're in a higher inflationary environment. The on the packaging side, demand for virgin linerboard was strong and we generate good margins and that business continues to increase profitability. At the end of the quarter, as we got close to the end of the quarter, we announced the sales of the Entra and Capekraft Mills. Those are knows that were in the recycled fiber segment. They, those are proceeding and we expect to complete both of them during this month.
Turning our attention to the strategy. And moving to Slide 17, the We've talked about this on previous calls. We have the 5 pillars of our strategy, aiming towards our 2020 vision. And I have a slide on each, just highlighting some of the initiatives in the respective areas. Firstly, on Slide 18, cost advantages.
We haven't been making investments across all our regions to improve efficiencies some of the examples are listed there, the natural gas conversion project at Somerset, at Somerset, the cut nanny power plant investment, the Gratkorn investments on the paper machine, all of those will help us as we move forward. At the same time, we look for other opportunities to reduce costs. And as part of our CapEx for this year, we're looking to invest in turbines at Saiccor and together on those in South Africa. We're excited about the procurement project. That's a global initiative leveraging from the global business.
And we think there's a sizable opportunity there to take further costs out of the business. Turning to Slide 19. The rationalizing declining businesses, Obviously, we have to anticipate a decline in demand for our traditional graphic paper and we've been doing that over a number of years. Some recent examples in South Africa, we have stopped production of coated paper. And we have streamlined the product offering within the South African environment Going forward, I think we recently announced that the Hussam volumes in terms of an arrangement we had with Mesa, those volumes will no longer be manufactured with some mills.
They will now come back to our European business and those will boost the profitability of the mills in the mechanical paper space. Then on Slide 20, as we've been managing our cash flow and cash generation, we've been making smaller, moderate investments, to grow the top line, mainly in the African environment. We did make investments in the, specialty packaging in Europe at the Alfeld Mo More and more recent examples is upgrades to Together and Ingridwana Pulp Mills and we will continue to look for opportunities to grow forging packaging in South Africa because it generates very good margins for us. We during the 2015 financial year, we we announced the investment in the Nanoncellular pilot plant in the Netherlands and we look forward to that progressing as we move into 2016. On page 21, we, we continue to focus on strengthening the balance sheet.
We've made significant strides towards reducing the debt. It ended the year at 1771, as I mentioned earlier, think there's will be opportunities during this year to, reduce that substantially further. We've announced the sales of the Instrone Capecraft, which I touched on earlier. And as the balance sheet gets stronger, that will enable us to refinance the remaining expenses debt that we have. And we still got the 2017 bonds and the 2021 bonds, and we will look in time to refinance them at a lower cost.
On Slide 22, as we look beyond the next year or 2, we need to start turning our attention to how we can grow the business and we look for opportunities to expand our specialty packaging offering. We're already doing some work at a number of our mills within the group, the AIN Mill the Maastricht Mill in Europe, we are looking to change some of that production towards packaging. And similarly, at some in the U. S. So we that is a segment, which is a growing segment and can generate good EBITDA margins for us At the same time, we continue to look for opportunities on the bioproducts side and in areas such as lignans and sugars.
And then Longer term, obviously, as dissolving wood pulp continues to be strong, we would look to debottleneck the South African business and look for further growth opportunities. Then turning to our outlook, on and I've moved now to Slide 24. We've started the year well. And we're forecasting that for Q1, the EBITDA and earnings per share will be better compared to the prior year, both from an operational performance perspective and fact that we could substantially lower interest rate or interest costs. At the moment, we have a headache because of the drought situation in South Africa It is, impacting on production a little bit, mainly at our Saiccor Mill in the KwaZulu Natal area.
We have had to slow production a little bit We've assessed the situation and our best estimates as we currently stand is that its impact on EBITDA for the quarter will be somewhere between $5,000,000 $10,000,000. Nevertheless, despite that, we are still confident that the earnings growth will be higher than last year. The dissolving wood pulp demand is strong and prices, as I said earlier, are higher than last year. And obviously, the rand is weaker, which helps us further. Graphic paper markets, I've touched on already.
It's fair to say that they're probably in a better place, than we previously had anticipated. We are realistic. We do still expect them to decline, but our order book is full and the mills are cash positive. In North America, the strong U. S.
Dollar will impact on trade flows. However, again, our order book is relatively full at the moment and we have taken costs out of the business. Wood prices are coming down. So based on the market conditions and the change rates at the moment, we expect that the EBITDA for the full year 2016 will be higher than for 15. And with the lower growth in earnings per share for the full 2016 financial year.
CapEx is expected be in line with 2015 and I talked about that on an earlier slide. And also, again, I talked about it, but we will continue to utilize our cash reserves to hopefully refinance that remaining higher cost debt that we have out there. Okay. So that's that's the slides I wanted to talk to. So operator, I'm going to put it back to you for questions.
You. Our first question comes from Roger Spitz from Bank of America. Please go ahead.
Thank you. Good afternoon. Regarding the fiscal 2016 EBITDA guidance up year over year, could you say what the main drivers will be which businesses or which geographies do you expect that to mainly occur in?
Yes. The largest growth will come from the South African region. Dissolving pulp prices are higher. The the rand is obviously weaker. We will benefit from that.
Our packaging business in South Africa is the demand is strong and that's another business that does benefit from the currencies as well because it did go into packaging for food exports. And within Europe, with the higher prices that we were able to achieve earlier this year. We are hopeful that we can continue to grow on the success that we had last year. And then in North America, remember, during this financial year, we did take significant curtailment production last year. And as we look forward to the new financial year, we view that as an opportunity if we can keep the mills full.
Perfect. You mentioned on the introductory remarks that you would look to address certain U. S. Bonds over the next 12 to 18 months. Maybe you said it and I just missed it, but were you I know you want to address both, but were you saying over the next 12 to 18 months you want address first the 6 and 5 ace first lien to 21?
We haven't got any specific plans at this stage. All all we wanted to highlight is that with the reduction in our net debt, the opportunity would be there for us to look get that. Glenn, maybe you want to expand further? Yes. The our 2021 bonds, have a call window that becomes available in April next year, 2016.
And depending on market conditions, we'll be looking to refinance those.
Perfect. And lastly from me, do any of your design wood pulp contracts come up with your 2 main customers in the near term. And if they do, do you have any expectations of any material changes either in volumes or pricing when they do roll?
Yes, with our major customers, we have staggered contracts. They do come up periodically. We are confident that we will be able to extend the ones that are maturing. And we don't anticipate any major changes to the key terms or the volumes.
Our next question is from Nishar Amlutam from UBS. Please go ahead.
I think firstly, rather than a good set of numbers, I think, in a very difficult market, so just a couple of questions from my side, if I may. I think the first one is just, you give an indication of the weaker, how that affected profitability, but can you give an indication of how much the weaker rand actually helped year on year profit improvement? The second one is just on North America, so you've done a bit of work in terms of reducing costs there. Do you think that's turned the corner? So Q4 was seasonally stronger, but Q1 where if you de read that, do you see that being still profitable or does that go to that's been not making?
And I think attached to that maybe give us an indication of the level of imports being seen in North American coated woodfree market? Has that increased? And what are you doing there to mitigate that? I think the third thing is just in Europe, can you just talk about what you're seeing there? I think more in light in terms of you increasing your volumes in a declining market.
And I think just lastly, exploquet, what's going to be the trigger for you to go back to making full dissolving pulp? I think you indicated that you're looking at that but do you need, a 10% increase in prices, for instance, on dissolving pulp to make that worthwhile?
Okay, Michelle, there's a number of questions. I will take some of them. I'm going to give the European one to Barry just now. So I'll start on the the currency and the U. S.
Questions, and then I'll hand over to Terry on the, on the European question. In terms of the weaker euro, yes, you're right. We did disclose the numbers. On the rent, it is fair to say it had a substantial impact. It's not as easy to measure because obviously, within the South African business, you measure the profits and grants and then you translate them back to dollars it was a substantial contribution.
The average rate for the year, Glenn was 11.90 was it 90 years? The average rate for the year was $11.90, which was substantially higher than the previous year. We do think as we move forward into the new financial year with with levels at, well, it's around the 14 mark. That can generate significant amounts of increased EBITDA for us. Then in terms of the U.
S. Market, it's still tough. It's still in a tough space. And Obviously, Q4 was, was better. It is a seasonally stronger quarter.
Look, we're realistic about where that market is. And we have pragmatic. We at the moment, our order book is pretty full and we're okay at the moment. But if the underlying pressures with the higher imports coming into the country, is, it's still there. In terms of the business as a whole, as I said, we've taken out substantial costs And at the same time, we did take, I think it was about 60,000 tons of curtailments during the year.
So I want to race that that is an opportunity as we move forward. You asked about the cloquet dissolving pulp Look, Michelle, we're getting close to that breakeven point. We're very, very close. One of the things I would say is that it is something that we are using to mitigate against the risk for the drought at Saiccor. And we potentially would look to up the production a little bit to help us through that situation.
Over time, I've talked about it before. Over time, we would want to hopefully maximize the dissolving wood pulp production at that mill. At the moment, it's about 2 thirds 1 foot. And then I'm going to hand you to Barry just to talk about generally about the European environment and then the volumes that you did see.
Yes. Thank you, Steve. As far as European business is concerned, there are really 3 separate issues. The first one is the export market This was strong for European producers on the whole during the year. And in the last quarter for us was particularly strong for the both for woodfree coated and for mechanical coated products.
So that's one explanation. The second one, of course, is that we grew the specialities business quite strongly during the year with the full deployment of also PN2 into the specialty area last year and the year before, rather, we had made quite a lot of paper on that machine that we stopped doing during the year. And the final point is the carousel of Houston products, which during the last quarter starts move into our hurdles. And those 3 really make up the reasons for the growth.
Okay. Thank you.
Michelle, I think that we covered all your questions.
Thank Our next question is from Lars Kjellberg from Credit Suisse.
And coming back to what you said, Steve, about the demand, it is very weak. You know what you have, you don't know what you're going to get. You've not in any shape or form in the past hedged the transaction exposure. Is that something you're now contemplating to lock in this very good profitability?
Yes, it's an interesting question. Obviously, with the likelihood of higher interest rates in the U. S. And potentially that weakening the rent further. It's something we have to be very careful doing.
We, we've been very conservative. I, we certainly wouldn't want to over hedge the situation for the Q1 period, we have locked in approximately 40% of the dissolving pulp volumes at taking out foreign currency contracts. But we would be very hesitant to go more than that.
Understood. When you're looking at pricing, obviously, European business have suffered from high paper pulp prices. At the same time, Soft Food prices have been under pressure for most part of the year coming down ballpark at least the contract business deter than $100 per ton. How do you what do you purchase mainly in Europe? Is that mainly hardwoods and that's why you're suffering that Gavin had the offset from softwood?
And given the size that you have in the purchase as a purchaser in Europe, what are you now seeing in terms of trends as China seems to be weak. And at least there's some talks about, some pressure coming back into the pulp market downward pressure status. How do you view that?
Okay. I'll take that one, Steven. In terms of what we buy, we buy both soft and hardwood, rather more hardwood than softwood. So on the whole, we have seen a significant price increase because hardwood has increased in dollars as well as the dollar strengthened against the euro. So that has significantly reduced margins.
Price increases on paper tend to lag behind, as you know. So I doubt whether we will be able to bridge that gap completely until the January quarter when we do see a price rise coming in. As far as pulp trends are concerned, I believe this is forecasting that is much like forecasting the results of witchcraft. I think it's, for us, quite impossible to do, but I do believe that, there is when the differential between hard and softwood is as close as it is now, then of course, it's possible to change from hardware to software, then that might bring some more balance into the market. But it's at the moment, we are finding a very difficult particular those prices are going.
Understood. Coming into the soybean market, just to talk about China, but again, Of course, most things, pretty much anything that goes into China at this moment seems to be rather weak. And you've seen a very strong price recovery in dissolving wood pulp. And you mentioned polyester, of course, coming down. How should the view there?
Is this a sustainable price change? And let's assume that hardware prices work to come down a bit? Is there a meaningful swing capacity that could sort of take off that momentum that you had in dissolving prices since March? And then the second component, I wasn't quite clear what you said, Steve, when you said you don't expect any meaningful changes to the contract structures. I'm sure you doesn't talk about prices well given the fact that you've seen spot prices coming up so much.
Just to clarify, do you not expect contract prices to go up? Is that what you said?
No, no, it's in terms of the same contract. It's obviously linked to spot prices in the Chinese market, the CCS price what I'm saying is that formula will continue to be applicable. Obviously, as prices rise more drop, I suppose, our prices to our customers will follow that. Does that make sense?
Yes, no, no,
no, yes. And then in terms of the, you talked about the factors influencing the pricing for dissolving pulp. And clearly, the possibility of hardwood pulp manufacturers swinging back to, dissolving pulp is always a and it is always there. And obviously, we would do that at Cloke as well as I talked about earlier. And what I would stress is, as at the moment, the viscose safer fiber prices have been good.
And those have boosted the margins of the the VSS manufacturers, and that's allowed dissolving pulp prices to rise. Could the price be under pressure as we move forward? The risk is always there. However, the underlying demand for dissolving pulp is still positive and prices in the spot market are now $100 higher than they were in December. So yes, maybe could it come back a little bit possibly?
And but The underlying demand is good at the moment. Pricing pressure is moving in the right direction. And obviously with the weaker run, that's strengthens our position. So we are positive relative to where we've come out of 2015.
That makes sense. Final question. Mark isn't there, but maybe Steve, you can help me anyways. The U. S.
Side of the equation, obviously, you saw some pricing pressure around the midpoint of the year. You just come out of the strong season agri, where you typically have seen stronger demand. In course, keep on coming in the dollar again as we strengthened, I guess. Could you see a scenario now with the U. S.
Prices taking up a leg down? I mean utilization rates are well done on what they were a year ago, of course, right, from a combination of lower demand domestically and a surge in imports. So Are you seeing any incremental pressure in the U. S. Pricing at this moment?
Yes, bear in mind, do you remember there was 2 price increases that went through in the U. S? And then demand started to come under significant pressure. We saw the dollar strengthened. We saw more import coming in.
And interestingly, oil prices have come back a little bit. They're still higher than they were a year ago. Your question could pricing come under further pressure? I suppose with demand being weak the way it is and the threat of imports coming into the country, there could be a risk of lower prices. What we have seen over the last few weeks is things have stabilized a little bit.
And as I said, the order book has been relatively full. We've been able to gain market share in amongst the domestic producers, which has enabled us to keep the most full. And all of that combined with the fact that we've been taking costs out of the business, we have to payback from the Somerset investment that we made. And the fact that in our base, we have 60,000 tons of curtailment. All of that combined gives me reason to believe that we can have a better year this year.
Perfect. So just to be clear, you haven't seen any pricing pressure. That's really what you said,
No, as I said, it has come back a little bit, but it's still higher than it was a year ago. And the reason I say that is because we put through 2 price increases. Remember, we put through 1 in July of last year, and then one in January of this year. Then it came back a little bit.
You very much. Our next question is from Ryan Morgan from RMB Morgan Stanley. Please go ahead.
Could you chat a little bit about, about the release line of business in the U. S? I understand it's historically was fairly low earnings contributed to the U. S. Business and it's turned on in the last couple of months.
Can you chat a bit about how that's progressed and where we were a year ago versus where we are today?
Yes, that business has been under pressure. It is exposed to China. It's not a large business. It's not a large contributor. But on a relative basis compared to 18 months, 2 years ago, it's probably making about $8,000,000 to $10,000,000 less EBITDA than it did then.
Sorry?
That's annualized.
That's an annualized figure. Bear in mind, it's relative to the other larger businesses, it is relatively small, but its impact year on year was about 8,000,000 to 10,000,000.
Thank you. And then, let me just chat about your accelerated outlook. You talk about looking at 2 mills in Europe and looking at packaging. I just want to if you could just share your thought process with us, there's a lot of and the right thing capacity in Europe that's converting to packaging grades right now. Are you not concerned that you're just following that train and potentially, potentially driving down margins in that grad?
Firstly, let me just stress that we're not talking about committing large amounts of cap to these projects. These are opportunistic, these are opportunistic and they allow us to reallocate some of our production to the higher margin segment. What I'll do is I'm going to hand over to Barry, to talk about some of specifics on that front, Barry over to you.
Thanks. We're talking about 2 mills in particular. 1 is Masstige where we have developed a folding box board grade, which we have done with minimal capital cost through the machine. And it's really a question of looking at markets which are very close or adjacent to markets we are already We already served the Perfume box board with ISBB grades. This is right beside it, so we know the customers, we know the kinds of needs they have and therefore, we're able to make a product that fits that.
And we do it on a relatively small scale. We build slowly. It's not that we are replacing the whole of that capacity with this new grade in short term. We've done a rather similar thing in ing and where we're making a white top liner, which goes into lighter laminate and boxes, which require extremely good printing and a very smooth surface. There again, it's a product we had already developed in Alfalfel.
We were already in the market we're just growing it to we're talking 10,000 or 20,000 tons here. You're not talking about enormous amount, but it's gets us into the market and slowly allows us to grow and takes some of the pressure of the for searching for volumes in graphics, out of those net.
Okay. That's great. That's awesome. Thank you. And then, just finally on cycle with the draft, has the draft already started to impact production levels at cycle or is it something that you, that you flag in as potential?
There has been some impact already. I'm going to hand over to Alex now just to go into a little bit more detail. We have had some impact on production, but the estimate that I've given you is our conservative based estimate. Alex, maybe you just want to expand further?
Thanks, Steve. Earlier in the month, we were actually we shut down one of the lines full maintenance. And we've just delayed bringing that back up. So it's been a little bit slower. Our estimate is that, there will be, as Steve said, about a $5,000,000 to $10,000,000 impact.
So we're running at 2 thirds capacity And there are really good rains forecast for the short term. So we are fairly confident that we'll get back up to full production in the next couple of weeks. We also do have a benefit that I think in Ghana. We are able to improve capacity just based on production just based on efficiencies and how well will the Mediterranean that is compensating somewhat?
Okay. That's awesome. Thank you.
Thank you very much. Our next question is from Sean Angura from Aviso. Please go ahead.
Good afternoon, everybody. And just a couple of questions. In terms of the sort of outlook for great declines in coated woodfree a mechanical. Obviously, it's a pass to the upside this year. I mean, we've been talking a lot about downside risk in terms of pricing.
I mean, perhaps you could comment a little bit about upside risk in terms of volume outlook for the next 2 years, specifically on the coated wood frame. And then just on that, I mean, the grade decline, I think in FY 17 is quite big relative to the last 2 years. Does that sort of imply that you'd be considering a closure or sort change in strategy on further production maybe in FY 'eighteen. And then just linked to that, I mean, obviously, the gearing profile is quite nice. I mean, where are you guys sort of thinking about dividends?
I know that the sort of mentioned a couple of quarters ago, just how that sort of ties to that. And then could you comment a little bit on the contribution from specialty packaging in Europe, I mean, you obviously said that the volume growth and passing has been quite favorable just so you could get a bit of feel on that.
Okay. That's a few questions. I, let me take each one and turn. In terms of upside to coated wheat free, yes, has happened over the last year. And I've already talked about the fact that our mills are fairly full.
What that means is that our mills are all cash positive. They are, full as I indicated And we are not anticipating any closures from those in the foreseeable future. Obviously, we won that on an ongoing basis. But with demand where it is at the moment, there will be no need to take capacity out. On a pricing front, Barry talked about it already.
And I mentioned that we are hopeful that we can get that through in January. And if it does, then obviously that helps offset the higher pulp costs that we've talked about. Only the gearing, look, I don't recall talking about a couple of quarters back, what we've consistently said that we want to bring the gearing down to two times EBITDA, we will we should, but on our outlook for 2016. We should take a big step towards that during, this financial year. And we don't anticipate paying a dividend during the 2016 financial there has been a good turnaround.
We don't disclose that as a separate segment, but the increase, relative to the prior year has $15,000,000 plus.
Thanks guys. Thank you very much. Our next question is from Bob Hoffman from RBC Capital. Please go ahead.
Yes, thanks. Just 2 quick ones. 1, you talked about the 60,000 ton of downtime Somerset, but also potential projects for specialty papers there. Could you just give us a little more detail on the thoughts with that and timing?
Yes. Again, it's similar to what Barry talked about. We're not talking large volumes, but again, it enables you to fill the machines. We, we already make certain grades of packaging at that mill, but relative to the overall size of summer say it is relatively small. And so we're not anticipating a major investment in the short term.
Okay. Thanks. And then, with regards to, cocaine, you also mentioned that potentially using production there to supplement some of the outages down in South Africa. What's the, what do you think the cost impact would that be? Because you said it's currently, you're not quite at a profitable price yet?
Yeah. As I said to you, the breakeven point now is very close. So, it's a marginal impact. And in fact, it's part of the $5,000,000 to $10,000,000 that I talked about. That is part of that number.
Okay. Thank you. And then just last question, these two mills that you indicated for sale, what was it the proceeds from that and what do you expect to use it for?
Yes, that was a ZAR600 1,000,000 for what's that? It's about $50,000,000 getting less by the minute, maybe 4 5, but, we would expect to reduce debt further with those proceeds.
Great. Thank
next question is from Wade Napier from ABier Capital.
Thank you. Just three questions for me. This year, you've decreased your CapEx guidance from about just below 1,000,000 to now 1,000,000 What would you guide net debt production to be going into 2016? Previously, I recall you were talking about $150,000,000 per Animas does that remain unchanged or will that increase now? 2nd question will be, with antidumping duties in the United States for uncoated would prepay but is there a potential to maybe turn off a quota in one of your North American mills and target the uncoated market as opposed to coated markets?
And my third question would be around the $50,000,000 FICO recovery boiler investment you mentioned. What is the timing of that coming online And what is the returns on that project? Thank you.
Okay. I'm going to take each question internally. CapEx, as I indicated, we estimate 2.50 for this year. Our estimate for net debt reduction over this course of this year is at least $150,000,000. So we start the year at 17 71 you minus the $150,000,000.
We're getting close to $1600,000,000. In terms of the quarters in the U. S, I would stress that we continue to be open minded about our U. S. Operations, but, as things currently stand, our order book is full and we we would expect to continue on the coated front.
On the boiler, the it's not cycle is Nudwana. And it's not a new boiler. It's fixing up the old one, which is It's reached the end of its life. And it's something that we have to do to go forward. It's it's timing is during the course of this financial year.
And as I indicated, it's about just over 500,000,000 rand investment.
Thank you very much. Gentlemen, we have no further questions. Do you have any closing comments?
I just want to thank everybody for joining us and we look forward to chatting at the end of Q1. Thank you.
Thank you for joining us.