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Executives

Roeloff Jacobus Boëttgerr - Chief Executive Officer, Executive Director, Member of Group Executive Committee and Member of Social, Ethics, Transformation & Sustainability Committee

Barry John Wiersum - Chief Executive Officer of Sappi Fine Paper Europe

Gary Bowles

Stephen Robert Binnie - Chief Financial Officer and Executive Director

Alexander van Coller Thiel - Member of Group Executive Committee and Chief Executive Officer of Sappi Southern Africa

Mark Gardner - Chief Executive Officer, President and Director

Analysts

Lars F. Kjellberg - Crédit Suisse AG, Research Division

Caroline Learmonth - Barclays Capital, Research Division

Brian Morgan - BNP Paribas, Research Division

Sean Ungerer - Avior Research (Pty) Ltd.

Nishal Ramloutan - UBS Investment Bank, Research Division

Sappi Limited (OTCPK:SPPJY) Q4 2013 Earnings Call November 7, 2013 8:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Sappi Q4 2013 Results.

[Operator Instructions] Please also note that this conference is being recorded.

I would now like to hand the conference over to Roeloff Boëttgerr. Please go ahead, sir.

Roeloff Jacobus Boëttgerr

Thank you very much. Good morning and good afternoon to you, and thank you for dialing in to our results call. As usual, I'd like to refer you to Slide #2, the forward-looking statements and Regulation G disclosure requirements.

Starting off with the summary on Page 4. Our dissolving wood pulp and specialty paper conversions were commissioned, all running well now. The operating profit, excluding special items, $70 million, which was up from the previous year (sic) [quarter] but down on the equivalent period a year ago. Net cash generation of $111 million. Special items charge of $177 million for the quarter, of which $94 million was noncash, and most of that relates to restructuring provisions and asset impairments. Earnings per share, excluding special items, $0.02 versus $0.11 for the equivalent quarter a year ago. Net debt at $2.2 billion, in line with what we planned, given the large capital projects.

Moving on to Slide 5. EBITDA and operating profit, excluding special items, an improvement on the previous quarter. We expect this trend to continue into the new year, with much stronger performances particularly from quarter 2 onwards, and I'll talk about it later. The first quarter we expect to be relatively weak. Net debt development. The net debt at $2.2 billion, above the maximum target we set ourselves. But going forward, we're feeling confident that, that will now start coming down quite rapidly, as a result of much lower CapEx being planned in the next couple of years.

The maturity profile on Slide #7. I think it's quite clear that, in summary, we've got sufficient headroom and no requirement for new funding in the shorter to medium term. It's important to note that we've also renegotiated our bank covenants with much more headroom now available to us, not that we plan to use it.

Moving on to the divisional overviews. Divisional operating margins, none of those margins are at levels where we're satisfied with them. But at least, the North American and South African are turning now for the better, and we expect those trends to continue going forward over the 2014 financial year. Europe, at totally unacceptable levels. But that, we also expect to improve as we implement the restructuring and repositioning of that business. And from quarter 2 onwards, we should see better margins -- particularly from quarter 2 onwards, starting in quarter 1, however.

On Slide 10, the demand and pricing environment remained weak during the quarter. We've commenced with the consultation process with employees regarding the transfer of production from our Nijmegen Mill to other Sappi mills, which is another step in lowering our cost base and also managing capacity. We are in the process of further fixed cost reductions. A number of initiatives are in progress, and the benefits of that should start flowing through towards the end of the first quarter. The Alfeld Mill conversion was completed, and that reduces graphic paper production in Alfeld by 150,000 tons per annum and increases our higher-margin speciality paper capacity by 135,000 tons per annum.

We've, earlier today, announced EUR 120 million investment over a 3-year period in our 2 flagship mills in Europe, Gratkorn and Kirkniemi. That will substantially reduce the cost base and improve the competitiveness of those 2 mills, with a quick payback. And this is part of our strategy to reduce our coated woodfree exposure to only those assets that can sustainably produce good margins and profitability in line with what we've done in the North American business successfully over the past few years.

Talking about North America and moving on to Slide 11. We've seen an improvement in operating profit over the prior quarter. Paper markets remained very competitive, with lower pricing, but volumes remained good. And we expect the competitiveness on that market to continue to increase, in fact. At the Cloquet developing wood pulp mill, the ramp-up proceeded extremely well, and we're currently operating close to full capacity and producing very good quality pulp. That was a textbook project for us. The release business continues to perform well, with higher volumes, better mix and lower costs. We've launched a number of new exciting packaging to the market during the year, and they were all very well accepted.

Moving on to the Southern African business. The specialized cellulose business, inclusive of Cloquet, had higher margins, production efficiencies, higher NBSK price and favorable exchange rates, which resulted in very high margins of 39% EBITDA margins, well above the normalized margin for this business. The South African domestic graphic paper market remained challenging due to high input costs and continued competition from imports, and that's more so for the coated graphic papers, which we are a very small player in South Africa.

The packaging paper segment improved through successful interventions, improved demand and pricing. And that business turned around, and we're positive about the outlook at long last, expecting much better performance form our South African paper business going forward. Variable costs, particularly in purchased timber and pulp, continued to increase as a result of the weaker rand exchange rate against the dollar.

Moving on to the strategic focus. We continue to have 3 main themes. The first one being a focused low-cost paper business with reasonable margins and strong cash flows. And despite the poor operating performance in the past of our paper businesses, they've always been strong cash generators, and that will continue [ph] going forward. The second theme is the growth in the profitable specialized cellulose-based solutions, as well as other higher-margin businesses, like specialty papers and packaging papers. Thirdly, a healthy balance sheet. We're making progress in that regard in our net debt position as it is, given the large projects, I think, is reasonable, we expect that to now ramp down quite rapidly as we're not expecting any large capital projects in the short term.

As far as the progress against these focus areas of ours on Slide 15. On the low-cost paper business, more needs to be done. But North America maintains a good cost position and holding on to the market share so that performance should be reasonable. In Europe, we do not expect industry dynamics to improve meaningfully in the short term, and therefore, we expect further cost pressure, downward pricing pressure and weaker demand. We do, however, expect meaningful improvement in our performance during this year, but that's based on our own actions in the -- vis–à–vis the business. In South Africa, cost pressures and weak local markets we continuing, but as I said, we expect this business now to perform reasonably well going forward and to continuously improve.

As far as the growth in the specialized cellulose and high-margin businesses are concerned, demand for dissolving wood pulp remains strong. Our customer base are even more and more under pressure as more capacity is added in the VSF markets, and we do expect that market to be slightly more challenging going forward. As we mentioned, the Alfeld conversion is also being completed successfully, and our volumes in that high-margin business will grow going forward.

The balance sheet, as mentioned, the debt levels and the renegotiation of the covenants. On top of that, we hope to finalize the Usutu plantation sale transaction in the near future. That will bring in an additional welcome cash injection to the business. They offer the cash generation opportunities which we are aggressively pursuing.

Looking forward, we're confident that, within 2 years, Sappi will be a well-balanced and robust business, generating good returns and will have a strong balance sheet. Most of the very tough decisions and large projects to get there are now behind us. It's now ramping up. Further giving attention to the European business, which will allow us to achieve that growth.

The main areas that we need to concentrate on is to continue growing our position as a low-cost dissolving wood pulp producer. That market certainly will tighten, and we -- probably, over the next 2 years, we'll see EBITDA margins between 20% and 30% rather than the 30%-plus margins that we have seen for a number of years now. We have to grow our high-margin specialty paper businesses in all regions, and we've got good traction in all 3 regions in that regard.

A smaller and simpler low-cost graphic paper business. We've announced all the actions in Europe, which will take 2 to 3 years. But the benefits should start flowing through from the second half of this financial year. The Nijmegen move is the first one and then these investments which we've been talking about. We have to maximize the value from our forestry operations in South Africa, and we're making progress. In terms of our North American business, we're in a good position, but we do believe that we'll have a slightly slow start to the new financial year, with the first quarter being weaker than what we had last year, certainly. But from then on, we'll be much improved.

So all in all, we expect a year that will be much better than the previous year in terms of profitability. It will be a year of gradual improvement, with a slower start to the financial year and then accelerating into the financial year. Cash generation should be strong. Capital expenditure a lot less than the previous year. And with a little bit of luck, our net debt indeed could be well below the $2 billion, closer to the $1.8 billion level.

I think I've covered the outlook in what I've said now. And we'd be happy to take any questions that you might have. Thank you very much

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Lars Kjellberg of Crédit Suisse.

Lars F. Kjellberg - Crédit Suisse AG, Research Division

It's a lot of questions, I don't even know where to start. If you start with your views on the dissolving wood pulp market. You talked about making progress, and yet you're talking about a margin erosion from 39% down to 20% to 30%. Just wanted to understand correctly how we should make progress in that business. In Europe, here, obviously, you're talking about getting a smaller platform, which I can understand, and clearly, from my perspective, what you're doing at Kirkniemi and Gratkorn makes sense. Can you define small platform? What does that mean? And when you're talking about the increased competition in dissolving wood pulp, what has really changed? I mean, we've had excess supply for at least 2 years. Is there any meaningful change you're now seeing in the market? And is that part of -- recalling you said, your own additions on the low end of the cost curve, if you can start with that.

Roeloff Jacobus Boëttgerr

Thank you, Lars. In terms of dissolving wood pulp and the margins going forward -- I'll sort of answer the first and last question together. And I'll also ask Gary and Mark to add to what I'm going to say now. The 39% EBITDA was an exceptionally high margin in the last quarter, and we pointed that out very clearly. And it was a combination of a number of factors that resulted in a very, very high margin. Traditionally, our EBITDA margins on dissolving wood pulp have been between 28% and 32%, 34% over a long period of time. So comparing the outlook statement that I've made of between 20% and 30% with 39% is simply, I think, not reasonable. We've got to look at margins that have been hovering around the 30% EBITDA level. When I say 20% to 30%, we obviously hope it moves toward -- closer to the 30% than the 20%. The reason why we expect margins to perhaps come down going forward is the fact that if you look at, first of all, the dissolving wood pulp manufacturers, yes, the competition has increased. There is no doubt about that. Nothing has happened in the market which we didn't expect or that is new. If anything, I think the number of -- talked about and announced increased -- capacity increases did not happen, and some have swung back to manufacturing paper pulp. One of the areas that we cannot ignore is the fact that the customer base, the VSF market is under pressure and under tremendous pressure in terms of capacity and pricing. Now when you're whole customer base goes through a period where there's tremendous pressure, then eventually it also affects the supplier. So for a period of time, in our opinion, a year or 2, we might see some pressure on our margins. But if you asked me why can we then say we're making progress, well, we've added to our capacity nearly 500,000 tons of capacity, all on long-term contracts with big, good margins because we still believe a margin of 25%-plus is a good margin. And we have a low cost base. So all in all, a robust good business, but I'm trying to guide towards a realistic outlook. And I think it would be wrong for us to try and project that we can sustainably make margins of 39%. That simply isn't going to happen. In terms of the EU, Barry you can also [indiscernible] -- comment on that, but if you ask me what do we see as a smaller business, I think, ideally, within the next 3, 4 years, we probably will have 3 or 4 graphic paper mills in Europe that are very low cost and right at the bottom of the cost curve, making quality papers and producing good margins. In addition to that, you will have the specialty paper market. That's a process and depends on how quickly demand reduces over that period, and that will determine the pace of what we're doing. Because at the moment, and has always been the case, since probably part of the problem in the paper industry is that these mills are cash generators and to simply close it a tad faster doesn't always makes sense. But we've got momentum. We're making, in my opinion, the right investment decisions to lower our cost base and to aggressively manage capacity.

Barry, would you like to pass comment on that? And then, Gary, if you have anything to add on the dissolving wood pulp.

Barry John Wiersum

Just a quick one, which is that we already are reducing our platform on graphic papers by converting Alfeld, and we, in fact, have taken a shift out of that market as well. The planned move of production from Nijmegen, that gives us -- the idea is to get a smaller graphics platform. It also give us the opportunity to look at possible further conversions of machines to something else.

Roeloff Jacobus Boëttgerr

Thank you. Gary, is there anything you want to add in terms of dissolving wood pulp?

Gary Bowles

Thanks, Roeloff. I think the issue with the VSF margins and the competition out there is that we -- I mean, we keep going on. I think one of the key issues is the impact on the antidumping decision, presumably in 2Q, that was announced yesterday. So we need to see how that rolls out, and hoping that will put some impetus into the VSF manufacturing operations. That's all. Thanks.

Lars F. Kjellberg - Crédit Suisse AG, Research Division

Just one follow-up question. The restructuring charge that you took, $177 million, is that principally what you expect from Nijmegen? Is that the number? Or is there something else?

Roeloff Jacobus Boëttgerr

There's a lot else. And Steve, would you like to just go through with that and give some clarity? Now luckily, Nijmegen cost is not nearly that.

Stephen Robert Binnie

Yes. Look, Nijmegen is a big chunk of that. The 2 major portions of the $177 million relates to asset impairments and restructuring provisions. On the asset impairment front, 90 -- let me just give you exact number. For the quarter, the asset impairments included charges to South Africa for the Enstra mill and the Stanger mill. And if you recall, earlier in the year, we did impair our Tugela Mill. So what we've done is we've been very conservative as we think of our asset base in South Africa. The only assets now that are left on the balance sheet for South Africa are our Saiccor and Ngodwana mills, and those are serving growing markets. And we are confident that they -- that those are strong assets and that there is very little threat of impairments there. In Europe, for the year, impairment is $63 million, of which Nijmegen makes up about $40 million. In addition to that, we did impair some of the other coated mechanical assets, and that's based on an assessment of the declining volumes in Europe. In addition to that, we've -- on the provisions front, we've made some provisions for restructuring for the relocation at Nijmegen of about $40 million and then other restructuring initiatives, primarily in the European regional office.

Lars F. Kjellberg - Crédit Suisse AG, Research Division

Okay. And that's the cash...

Roeloff Jacobus Boëttgerr

Give somebody else also a chance, Lars. Some of the other people also want to talk.

Lars F. Kjellberg - Crédit Suisse AG, Research Division

Just to clarify. So that was the cash component of today's -- what you talked about?

Roeloff Jacobus Boëttgerr

I think we've just got to clarify that was not only cash, this was the total charges.

Stephen Robert Binnie

Yes. The impairments were accounting charges. They weren't cash charges. And similarly, the restructuring provisions for Nijmegen, for example, that cash hasn't flowed yet.

Operator

Our next question comes from Caroline Learmonth of Absa Capital.

Caroline Learmonth - Barclays Capital, Research Division

A couple of questions, please. You've renegotiated your covenants. Can you tell us what the new covenants are? And what's the level of covenants? Secondly, on the restructuring in Europe, when can we expect further detail or further announcements on Nijmegen and potential other restructuring initiatives? Can you give some more flavor around what exactly you're doing at Gratkorn and in terms of the EUR 120 million investment? And then just finally, on the chemical cellulose market, have you been selling your product at market prices or at a discount? What's the level of your capacity utilization of the plants? And what's the proportion of your contracted volumes as a percentage of total?

Roeloff Jacobus Boëttgerr

That's quite a lot of questions you've asked. I'll ask Steve to just quickly go through the covenants that we've renegotiated. In terms of the investment in Europe, I think I just want to make it clear, it's not only at Gratkorn, it's in Gratkorn and in Kirkniemi. The one that relates more to power generation is Kirkniemi, which would substantially bring down our cost base and in Gratkorn, in a number of areas, particularly pulp. Gary can also comment on that. We will make announcements as we go along in terms of Europe. For this financial year, we don't expect to make any further new announcements or even update in terms of the progress with what we've already announced. But there are not any further announcements planned at this point in time, which doesn't mean we can't embark on the actions, should the market require that. In terms of the operating rate, our plants are running full, all of them, in terms of DP and dissolving wood pulp. And our contacted business versus spot business remains in a region which we've said, and that varies from time to time and as we bring on our capacity. Gary, you might want to add to that, but a very high proportion of our business is contractual. When I say very high, 80%-plus.

Steve, covenants?

Stephen Robert Binnie

Yes. On the covenants, I think the 2 key changes that we've made were, firstly, on the removal of the net-debt-to-total-cap covenant. And obviously, that gives us more flexibility as we incur these asset impairment exercises, we don't have to worry about those accounting charges. But equally important is the net debt-to-EBITDA ratio. If you recall, our previous ceiling was at 4.5, and what we've done is we've renegotiated a new peak at 4.95. It does phase down over a period of time through to March '16. But I think the key number you're looking for there is the current 4.95 ceiling. So that ratio at the end of September was 4.1, so we've got significant amount of headroom above that.

Roeloff Jacobus Boëttgerr

Gary, would you like to add a further comment or Mark and Alex, on DP?

Alexander van Coller Thiel

Yes. Maybe -- this is Alex. Maybe just the question in terms of market prices or discount, we're selling at market prices.

Caroline Learmonth - Barclays Capital, Research Division

Okay. Can I just ask on the covenants? Is there still an interest cover covenant?

Roeloff Jacobus Boëttgerr

Yes. Yes, that's at 2.25, and we're -- Caroline, we're well above that. So that's not to be concerned about.

Operator

Our next question comes from Brian Morgan of BNP Paribas.

Brian Morgan - BNP Paribas, Research Division

Just 1 question from my side. How do you see your NBSK-linked contract prices relative to global DWP industries at the moment?

Roeloff Jacobus Boëttgerr

That's a very good question. And NBSK continues to go up all the time. The market is slightly under pressure. So I think, indeed, if you look at where we are on our contractual prices, we're, actually, on a very good territory. The question is how long can you sustain it, if market prices go below where your long-term contact prices are, on a reasonable basis.

Brian Morgan - BNP Paribas, Research Division

And back to the question...

Stephen Robert Binnie

And that's one of the reasons we talked about the fact that margins would be under...

Roeloff Jacobus Boëttgerr

Would be under pressure going forward.

Operator

Our next question comes from Sean Ungerer of Avior Research.

Sean Ungerer - Avior Research (Pty) Ltd.

Just a couple of questions as well. In terms of the NBSK outlook, you obviously mentioned that you're sort of trading in line with that at the moment. I mean, do you sort of have a 1-, 2-year view, where you sort of see the NBSK prices itself, not actually your dissolving wood pulp prices according to that?

Roeloff Jacobus Boëttgerr

I'm not going to be guiding -- looking in that. But I'm going to ask Gary and Alex just to try and give a stab of what they think the NBSK prices would be doing over the next year or 2.

Gary Bowles

Thanks, Roeloff. That's really a nice one. Not being an expert, but the way I see it is that if you look at softwood pulp, there's not a lot of capacity increase in that market. So probably at current levels is a good guess. Obviously, the hardwood prices and the hardwood market is a different story.

Sean Ungerer - Avior Research (Pty) Ltd.

Okay, great. And then just in terms of Cloquet, obviously, it's running quite well. I mean in terms of nameplate capacity, do you think there's any optionality -- or sorry, more upside and actually being able to exceed that? And then just, secondly, on the sort of impact that was previously guided on Q4 from both Ngodwana and in Cloquet and then as well as the guidance going into Q1 for the Alfeld Mill, can you provide a bit of commentary on that?

Roeloff Jacobus Boëttgerr

Mark, would you like to talk about Cloquet capacity and our ability to perhaps do even better.

Mark Gardner

Okay. I think, well, the Cloquet mill has started up and is running very well and basically, running at our designed CapEx capacity today. Knowing the people at Cloquet and how good they are at what they do, I would expect, over time, that we can find opportunities to continue to move that capacity up. We've build it in such a way that it should be able to fully step up over time without a lot more capital. And the other opportunity, of course, is to move it up in entire purity Alfeld pulps as well. So we've got plenty of options with the mill, and we're very pleased with the way it's running.

Roeloff Jacobus Boëttgerr

I think it's important to note that all the 3 dissolving wood pulp mills now are really running exceptionally well. Saiccor, over the last quarter or so has really reached maximum or record production levels above what we actually planned to achieve, and it's doing that on a fairly sustainable basis. And Ngodwana has ramped up extremely well. So for the year, going ahead, we're very confident that from a production point of view, we have a very good position. Obviously, we need to look at what happens to costs and markets and -- but that's normal business. Barry, would you like to comment about the Alfeld ramp-up?

Barry John Wiersum

The machines started up on October 12, and 5 days later, it had products off the assembly line [ph]. We have now got first-grade salable quality, and we are selling it in the market. We have a lot of qualification to do with customers because it's a specialist paper. So they often, to tell you the truth -- the testing is very thorough indeed. That, now, is on its way. That will take some months. But we have other business that we can put onto this machine and also generate income. And we expect it to ramp up to its specialist qualities over the first 6 months.

Roeloff Jacobus Boëttgerr

Thanks, Barry.

Sean Ungerer - Avior Research (Pty) Ltd.

Okay. And then, sorry, 2 more questions to follow up on that. Your sort of guidance was that kind of woodfree demand in Europe is going to down by 6% per annum. I'm presuming that's for next year. I mean, was that in mind? And assuming that affects you, where do you sort of see your operating margin in Europe for these? Going past, Q2, Q3, is when you said it will pick up.

Roeloff Jacobus Boëttgerr

It's a good question and one which is, I think, important to answer because that will affect how we turn the business around into the profitability. Going forward, we said between 3% and 6%, 6% sort of at the higher end of what we think will happen. The European turnaround will be gradual. We probably will still be in the operating loss position in the first quarter and then -- or close to a breakeven and from then on, improving as the actions we're taking are starting to bear fruit. We don't expect any help from the market, to be honest. If it happens, that will be great. But we expect the market to remain tough. From an EBITDA margin point of view, we've always said that we want margins above 5% at least in the European business. And I think we'll start getting back there in quarter 3 and 4, really. Barry?

Barry John Wiersum

Yes. That was right.

Operator

Our next question comes from Nishal Ramloutan of UBS.

Nishal Ramloutan - UBS Investment Bank, Research Division

Just a couple of things from my side. With the cost savings in Europe and South Africa, can you give us an indication of what sort of levels of cost savings you're targeting? Maybe just a little bit on what sort of returns you think you're going to get for those investments that you're going to do in Europe, this EUR 120 million investment. And can you maybe just give an indication if your SA paper business, so shipping out chemical cellulose, is that still loss-making? And maybe just lastly, can you give an indication of Cloquet, the margins that you actually achieved in Q4?

Roeloff Jacobus Boëttgerr

Right. First of all, the investments in Europe, I think, the EU -- what I was saying to you is, over a period of 3 years, and we're expecting a 3-year payback at the longest. So you could actually argue that some of those will be a 1-year payback, very good paybacks. These are very specifically targeted investments to substantially lower our cost base in mills that are world-class and already low-cost mills. At Kirkniemi for instance, energy, that is perhaps the weak spot of Kirkniemi as a mill. And we're embracing that, and we'll really put it at a very low-cost end. In terms of the total cost savings, we never publicized the number of what we expect to save in totality and will not at this point in time. Your third question I forgot. Cloquet margins, we don't disclose separate mill margins. But they're in line with our DP margins. If you think about it, 39% for the business, including Cloquet, means not 1 dropped the ball. In fact, everybody performed exceptionally well.

Nishal Ramloutan - UBS Investment Bank, Research Division

Okay. So is it sort of that 20% to -- 20% margins that you said chemical cellulose could go down to?

Roeloff Jacobus Boëttgerr

We don't worry about that, and I think when one gives a range, you don't necessarily have to pick the lower end of the range. I think it's more realistic to say if we say 20% to 30%, we probably mean that it will be 25% as a starting point, and we would hope for the higher end of that, just given a very wide range, so I'm not going to box myself here. But no, I think we would be very disappointed if average margins are between -- below 25% to be honest.

Nishal Ramloutan - UBS Investment Bank, Research Division

Okay. And just the SA paper business, is that still loss-making?

Roeloff Jacobus Boëttgerr

No, it's not. Eventually, at long last, we've turned it, and we expect a good performance from that. Alex?

Alexander van Coller Thiel

Yes. No, certainly, there's very good upside. We've done quite a lot in terms of cost saving, rationalization. And we're confident that we will continue in growing that in the future.

Nishal Ramloutan - UBS Investment Bank, Research Division

And just to clarify, so you said that European investments, the payback, I think, you're initially seeing 3 years, and then it was 1 year. Is it 3 years or 1 year payback?

Roeloff Jacobus Boëttgerr

3.

Nishal Ramloutan - UBS Investment Bank, Research Division

3 years, okay.

Roeloff Jacobus Boëttgerr

Some parts of it will be 1 year. But if you look at the overall spend and when we spend it, it will be a 3-year payback.

Operator

Our final question comes from Andrew O' Grady [ph] of BNP Paribas.

Unknown Analyst

Just could you possibly give guidance for your restructuring cash cost into your European business for full year '14. And is that included in your EUR 120 million investment in this business?

Roeloff Jacobus Boëttgerr

The -- all the costs of the European structure has already been taken from an income statement point of view in the 2013 year and included in special items. Of that -- of the total special items, $90-odd million dollars is cash, and that's not only European. A large proportion of that is European and will be in cash outflow during the year. But -- and that's not included in the capital expenditure, which will be, over a 3-year period, the EUR 120 million .

Unknown Analyst

Okay, that's helpful. And just on your Gratkorn mill upgrade, your rebuild of this mill. I understand that this would be -- the mill will be out for 1 year, a little bit more than 1 year. Any -- I mean, could you maybe quantify in terms of EBITDA impact? I know it's a bit started down the road, but I mean it's 1 -- I mean it's 25% roughly a few project's capacity in Europe. So any...

Roeloff Jacobus Boëttgerr

I think you've got that one. There's a big misunderstanding here. The mill certainly won't be out for a year. Barry, would you like to talk about expected downtime. This will happen gradually over a 3-year period, the cash flow and the impact, and certainly, we're not expecting long downtimes at any one of the 2 mills -- of the 3 [ph] .

Barry John Wiersum

The paper mill, the paper reduction, it's -- the mill be out for about 2 weeks, when the conversion actually happens, when the rebuild happens. The pulp mill will be out for slightly longer because we're rebuilding a large parts in Gratkorn, and thus, we expect that to be out for more than a month.

Roeloff Jacobus Boëttgerr

Thank you very much to all of you for dialing in. And you're, as always, welcome to contact us individually. We thank you. Bye-bye.

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