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Sappi Limited (NYSEMKT:SPP)

Q4 2011 Earnings Call

November 10, 2011 8:00 am ET

Executives

Roeloff Jacobus Boëttgerr - Chief Executive Officer and Executive Director

Mark Richard Thompson - Chief Financial Officer and Executive Director

Alexander van Coller Thiel - Chief Executive Officer of Sappi Southern Africa

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

Analysts

Tassin Meyer - Citigroup Inc, Research Division

Stephen Atkinson - BMO Capital Markets Canada

Lars Kjellberg - Crédit Suisse AG, Research Division

Caroline Learmonth

Unknown Analyst -

Operator

Good afternoon and welcome to the Sappi Limited Fourth Quarter 2011 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. At this time, I'd like to hand the conference over to Ralph Boëttgerr. Please go ahead, sir.

Roeloff Jacobus Boëttgerr

Thank you very much. A very good morning and good afternoon to you all and thank you very much for taking your time to dial into our results call. I'd like to draw your attention as usual to the second slide, Forward-looking Statements and Regulation G Disclosure Requirements.

Moving on, on Slide #4, summary of our results. Operating profit excluding special items, $80 million for the quarter, up 33% on the previous quarter but down on the equivalent quarter 1 year ago. Next-generation, particularly strong in our fourth quarter at $279 million. But we had strategic initiatives which we implemented during this quarter, in terms of the further impairment and restructuring activities in our business, which resulted in a charge of $165 million, $98 million of which was non-cash. North American business, as well as our Southern African chemical cellulose business, continued to perform strongly during the quarter. High input costs continued to squeeze margins, but input costs did start to decline towards end of the fourth quarter in just about all our businesses. The net results for the quarter, a loss per share of $0.24, mainly as a result of the interventions that we took in our business.

Moving on to Slide #5, The Group Financial Summary. I think the summary of this slide is that, quarter-on-quarter -- equivalent quarter the previous year, the results were weaker, but on a year-on-year basis, a significant improvement in the underlying performance of the business, with an 11% increase in turnover and a 19% increase in operating profit, excluding special items. As I've mentioned, the strategic interventions of more than $300 million did have a negative impact on our net results and, in fact, resulted in a net loss for the period. But the majority of those charges, non-cash. Let me draw your attention to the net debt to total capitalization, going in the wrong direction at 58.7%, however, we did reduce our debt, and I'll talk later about that.

Slide #6, the operating profit excluding special items and the trends there. You can see that we had a very strong start to the financial year and then with the growing uncertainty in economic conditions, it declined. Our third quarter was negatively impacted by a number of maintenance shuts. The fourth quarter, although better, was also impacted by strike action in the South African business. The fourth quarter normally being a seasonally stronger quarter than the third.

Slide #7. EBITDA trend in line with the operating profit trend. What is important is that input cost did start going down in fourth quarter.

The usual slide on the earnings versus the prior-quarter on Slide #8. I think the important issue here is that both quarters, heavily impacted by the charges as a result of the interventions which we endeavored and implemented in our businesses for improved results going forward.

Moving then on to the divisional reviews, starting on Slide #10, dealing with the margins. Our South African businesses margins improved during the quarter on the back of the good performance from our chemical cellulose business, which is further boosted by a weakening of the rand towards the end of the quarter. The paper businesses in South Africa, however, did not contribute at all to margin as they made a loss. North American margins were flat, but down on the last year and the main reason for this is an increase in costs and also decline in pulp prices and, as you know, we are long on pulp in North America and we sell pulp, and the margin of that reduced during the year. Our European businesses margins is still low, although improving slightly, we expect those margins to improve as the effects of the cost reduction plan has been implemented and starting to come through in our results.

On Slide #11. Quarter 4 on quarter 4, volumes in our European business declined. Prices were up. Cost was significantly up, although we have seen, as I previously mentioned, that the costs stabilizing and, in fact, coming down. Export sales were unfavorably impacted by capacity expansions in the global market, particularly from China, and also by a very strong euro for most of the year. The benefits of our variable cost reduction plans started to impact cost towards the end of the year and are now ongoing, and we are on target to achieve the cost reductions of $100 million year-on-year, as previously mentioned. Fixed costs, also declining, and we are seeing benefits of the Biberist closure, also in terms of the products that are selling, which we've implemented.

Moving on to Sappi Fine Paper in North America, slide #12. Volumes up, and prices generally up, with the exception of pulp prices, which are down. Mostly, our businesses continued to perform well despite input costs increasing, that is the pulp business, the paper business as well as our specialty businesses.

If I move, then, on to our South African business, on Slide #13. We have 2 major businesses here, with the 1 not performing well, and that is our paper and the packaging business. In South Africa, volumes were down, prices slightly up, the costs were up quite significantly. We also negatively affected by very strong rand for most of the year, which made imported products very competitive in that market. Also, our businesses' cost base were starting to get less competitive than it should have been and, therefore, the very decisive action that we've implemented resulting in the restructuring costs of $99 million, $56 million of that, which was non-cash, and I'm now referring to the South African business only. We're expecting to get benefits of $33-million-plus per annum as a result of these actions that we've taken. [indiscernible] the chemical cellulose business continued to perform very well. Prices were good, helped further by a weakening rand; volumes very good; but we did see, also, an increase in costs.

A very quick update on our strategy. Remind you that 4 key elements to our strategy: Optimization of our businesses that are performing well to ensure that they remain performing well; fixing the underperforming businesses; investing for future growth; and very importantly, managing the liquidity of balance sheet and cash resources very tightly. In terms of optimization, as I said, the North American business continued to perform very well in all 3 of the business areas. We continue to focus on further cost reductions and to actively manage our customer base and our product mix. In terms of chemical cellulose, despite demand in -- generally, China weakening slightly, we had very good production and sales volumes and, in fact, sold 190,000 tons in our fourth quarter, which is a record. Benchmark prices are declining towards longer term trends, not unexpectedly so.

On Slide #17, we're fixing our underperforming businesses. They are very well on track with the actions that we're implementing there. In terms of Europe, Biberist has, in fact, ceased production in July. We've been successful to transfer all those volumes to other lower-cost mills within our system. The cost reduction initiatives of $100 million year-on-year, on track, and we're actually looking at areas to further reduce our costs without having to spend money to achieve that. And we are all well advanced in implementing our new service model and we are seeing benefits of that coming through. In terms of our South African paper and paper packaging business, the restructuring is under way. All the charges related, and cost too, these actions has been taken in our 2000 financial year so we do not expect any further restructuring and/or repayment charges in the coming year in our South African business. I mentioned the savings that we will get, and those are not in savings, but we also believe we'll be at a much more competitive position, also against imports and thereby not only getting benefits on the cost side of the business but also on the revenue side, very importantly, following these actions.

In terms of investing for the future, chemical cellulose being one of identified areas where we intend growing our business. We've announced earlier this year the 210,000 ton capacity expansion of chemical cellulose, with the conversion around Ngodwana mill, is still on track for production in 2013 with an arrangement of $340 million. And, as recently as this morning, I announced the further expansion of 350,000 tons of chemical cellulose in our Cloquet operations in North America. The investment, $170 million, we also plan to start up production there in early 2013. Once these new investments are low-cost producers, and indeed will be in the lowest cost put altogether with cycle. All 3 of those are also in terms of scale and in terms of the fact that they being some of the most competitive chemical cellulose facilities in the world. I think what's important here is we measure the cost as delivered cost per ton to the customer. The expansions are governed by the fact that these markets are growing fast, there's a real need from our customers for additional capacity and product, and taking into account other potential startups and capacity that we brought to market by our competitors and, therefore, the importance of our price base. In terms of our specialties businesses, in North America, South Africa, and in Europe indeed now growing. We're very excited about our Northern America Release Paper business, and we are expecting to bring new product to market within the not-too-distant future. Our forestry resources in South Africa, very important assets, and assets that we intend growing and, indeed, we are growing on a continuous basis. Not only in terms of the sheer size but also in terms of yield. We're also working on a number of exciting energy projects, mostly in South Africa, and we hope to bring some of those also to the fore in the not-too-distant future. None of these energy projects will be of a capital nature that will be putting strain on our cash resources.

Talking about that, on Slide 19, the balance sheet and net debt position. Our net debt is down $700 million from the peak of 2009. It declined by a further $120 million in the current financial year. That, despite the fact that our working capital has been negatively affected by cut-off during the current financial year, as we've previously explained. We did previously mentioned that we set ourselves a target of reducing our debt to the low $2 billion by 2012. We nearly got there by the end of 2011 with a $2.1 billion target, and as a result of the recently announced investments in future growth, we now expect our debt to remain around about the $2.1 billion, $2.2 billion area for the next 2 years, until those projects start up and will start contributing to our cash. Our opinion, a reasonable situation for our debt given the investments.

Moving right on to Slide 20, and looking at our liquidity maturity profile which is equally important and, perhaps, more important than the absolute debt level. We have, during the year, done a successful refinancing, actually more than one, amounting to around $1.1 billion. That very significantly extended our maturity, improved our maturity profile. We debt we raised had maturities, has maturities of between 7 and 10 years. Not only did those refinancing result in a much improved maturity profile, but it also reduced cost of our debt, or backed out of once-off cost. So we will see the benefit of that mostly coming through now, in our new financial year. We're also very committed to further reduce the cost of our debt financing costs, and we have real opportunity to very significantly reduce that when we deal with the 2014 bonds, roughly $800 million, and that really is our most expensive debt. We are in a position, we think, that we will be able to start dealing with that in the second half calendar year of 2012 which would, depending on market conditions, allow us to very significantly reduce our finance costs going forth.

In terms of our outlook, there are 3 slides, the last 3 slides in the presentation pack. I don't intend reading them to you. I'd rather quickly try and just give you a summary of how we see the development of our business and what happened in 2011. Plus, 2011 was a year of continued improvement in underlying performance, operating profit up 19%. The year started off positively. The deteriorating global economic conditions did affect our business from the third quarter onwards, as many other businesses. 2011 was also a year of significant and decisive intervention in terms of lowering our cost base, right throughout our business, in terms of capacity management and in focusing our assets and products to match changing market requirements and conditions that will greatly improve our margins and set us up for improved returns. These actions and interventions resulted in significant repayment and restructuring charges and, indeed, negative earnings for the year. We are confident that we will have a good payback on these charges that we took and we have already seen some of these benefits coming through in many of our businesses. This also could put us in a much better position to deal with the current weakening and challenging market environment which we are facing. As I mentioned, our refinancing of $1.1 billion also improved our liquidity position, which is important, particularly in these uncertain economic conditions. And as I said, also we are earning to further reduce cost of our debt going forward. 2011 was also a year where we committed to significant investments for growth in higher growth and higher margin businesses, and particularly in an area where Sappi is already the global leader. I'll refer you specifically to the Ngodwana and Cloquet expansions. We are also so very much aware of the uncertainty and risks connected to the world economic situation, and particularly in the Greek and Italian debt issues. We do, however, have contingency plans in place to deal with a possible double-dip scenario, and these plans are focused on costs, working capital and liquidity. We are confident that Sappi is now much better positioned to deal with tough economic conditions and, indeed, most positively, Sappi is very well-positioned for growth and improved returns going forward. We expect to continue this trend of improved operating performance and to return the net profit and positive earnings in our 2012 financial year.

Thank you very much and I am, together with my colleagues, looking forward to any questions that you might have and we'll answer to the best of our ability. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Caroline Learmonth of Absa Capital.

Caroline Learmonth

Please, could you give some more detail around the Southern African cost savings that you're targeting? And if you can, at this stage, give us indications of any particular facilities that are going to be impacted by these restructuring initiatives. And then can you give us a bit of your rationale around your desire to reduce debt versus your desire to grow higher margin businesses and how you weigh up further chemical cellulose projects, and the longer-term outlook for chemical cellulose versus wanting to preserve cash and reduce your debt? And then, importantly, you have some significant CapEx coming through now in terms of chemical cellulose. Can you give us any CapEx guidance for this financial year?

Roeloff Jacobus Boëttgerr

Yes. Caroline, first of all, in terms of the cost savings, and Alex can also add to this, is we're looking at our entire business in South Africa. There's not one single plant and not one single area of the business where we're not looking at reducing costs. We started off -- in the SG&A and otherwise more the office white-collar-worker area of our business, but it's not only related to people, a lot to do also with systems processes in our business. And then, in every single one of our mills, we looked at every machine, every operation, every supply into that, to see where we can improve the business. And unfortunately the net effect of this audit will affect up to 1,000 people in our Southern African business, and we hope to have completed by no later than March of 2012, with the benefits starting to come through from the second half of the financial year. In terms of debt reduction versus investment in higher-margin businesses. That is a very important question. I mean, we can reduce our debt and save perhaps 6%, 7%, 8% at maximum, on whatever you use your debt with. And importantly, obviously, then also unchaining yourself in terms of what you can do going forward. We believe that these projects in which we invest in will give returns much higher than 6% or 7%, which it will get from reducing debt. And also, you can reduce debt only to a certain extent. You can't actually build the business, going into the future, on the face of reducing debt. You need to grow. This is an area where we are the world's market leader, and we do not want to lose that position. We need to grow with the market. As long as we're confident that we're the lowest cost producer and that return on that would be greater than reducing debt, we think that is the way to go. But I need to stay here, we are absolutely committed to also bringing down our debt but it's a processes. We have reduced it by $700 million since 2009. And we believe that we'll, again, start reducing as from 3 years from now, once these projects come online. With a little bit of luck and a lot of hard work, we will do all these investments without increasing our debt from the level where we are at the moment. The CapEx going forward, I mean, these 2 projects are, in itself, amounts to about $500 million, $520 million. So over a 2-year period, I need to add, that will increase our CapEx. So when he's talking about our normal CapEx, there also -- which you can refer to the our past 2 years as a good guideline and add off of $500 million to that, to get to a guidance of where talking. Alex, would you like to add anything on the South Africa restructuring projects?

Alexander van Coller Thiel

Maybe just the only comment to make is that in terms of facilities and the impact of -- what we basically are doing is reducing capacity where we do have overcapacity. And that will involve closing off some old fiber lines and also closing 1 or maybe 2 machines.

Operator

Our next question comes from Ms. Tassin Meyer of Citigroup.

Tassin Meyer - Citigroup Inc, Research Division

Roeloff and team, just 2 questions. Firstly, looking at your South African business, you have indicated that pulp and paper, as we know, is doing particularly poorly. Can you just give us an idea of what normalized margins for that business -- I mean, 9% even if it's coming from cycling in some losses in the pulp and paper business still seems quite low versus history. And then secondly, can you just give me an indication if there are any currency moves in the moving your net debt towards the end of the quarter due -- in the $300 million, $400 million, that it was lower versus Q3?

Roeloff Jacobus Boëttgerr

Yes. Tassin, in terms of the margins, the margins were very low in our paper business. And we remain in a position where we say the cycle margins should be very high teens at a minimum, which just tells you that the paper businesses did not perform well at all. And in the South African environment, margins in our paper business should be touching the 10%, and will be in the not-too-distant future, in our opinion. We've gone through a particularly tough period in terms of low demand, very, very aggressive imports and having had our plants not at an optimum efficiency level. Yes, I think that margins are close to 10% on the paper side and much, much higher for that for our chemical cellulose business, and other pulp businesses, for that matter. The second question, in terms of debt, Mark, would you like to -- I can tell you, there's not much of an effect.

Mark Richard Thompson

Yes. About $40 million benefit on the debt across the year. $40 million.

Roeloff Jacobus Boëttgerr

So this is a real reduction and not a currency play.

Operator

Our next question comes from Lars Kjellberg of Crédit Suisse.

Lars Kjellberg - Crédit Suisse AG, Research Division

I have a couple of questions. I'll take them one by one, if that's okay. Biberist, to start off with. Was that meaningfully out of the cost base in the fiscal fourth quarter or should the real benefits start to come in, in the new fiscal year?

Roeloff Jacobus Boëttgerr

You're talking Biberist? The cost benefit started coming through in the fourth quarter, but they were not at full run rate.

Lars Kjellberg - Crédit Suisse AG, Research Division

Can you give us any sense of how much it did actually achieve in the fourth quarter?

Roeloff Jacobus Boëttgerr

No, we can't. We're not going into that particular detail.

Lars Kjellberg - Crédit Suisse AG, Research Division

Okay. Looking at the cellulose business, of course, it's a great business for you and, clearly, other people have discovered it's also a very business. Aren't you concerned about this wave of capacity that is now coming on stream? The second question, I just want to ask on a particular metric, I mean, Cloquet wood costs cannot be that competitive and, obviously, you mentioned as delivered to customer. But I suppose, then, you can be competitive if you deliver it enough to North American market, but that's not where is the growth is. So growth, as far I understand, is in China. So if you want to try to quantify how Cloquet can be on the low end of the cost curve and also the thoughts on all this new capacity coming in and how that's going to work through the system.

Roeloff Jacobus Boëttgerr

In terms of chemical cellulose capacity growth rate, obviously, one needs to look at that very, very carefully. The long-term point, in terms of growth, is very, very positive for chemical cellulose. It has been for a long period of time. All indications and independent studies point to continued growth in chemical cellulose as we go forward. We are aware of a number of announced capacity increases in chemical cellulose and therefore, to us, is of the utmost importance, is to ensure that whatever capacity we bring to market is at the very low cost end of the market. Those in Ngodwana, additional capacity, and Cloquet capacity will be on a delivered cost per ton in the same region of cycle, which means we are convinced that we will remain the lowest cost producer in the world of chemical cellulose. There are a number of reasons why our Cloquet mill will be that competitive. It is one of the most modern pulp mills in North America, and the technology that we're using there is particularly good, to ensure that our production costs are going to be very low. It's also an extremely efficient mill in terms of the way it's being run. In terms of wood costs, I'd like to actually differ with you. Our wood costs are extremely competitive and Mark Gardner, I think, is in a better position to answer you, just in terms of our inputs for the Cloquet mill. Mark?

Mark Gardner

Yes, Cloquet is a low-cost North American producer and we also benchmarked our costs at Cloquet on a regular basis, around the world with other world producers. Wood costs in the Cloquet mill are quite reasonable and in the lower quartile for pulp mills in North America and also around the world. One of the things that Roeloff touched on, that really separates Cloquet from many pulp mills is it's unique design, the state-of-art technology that we use there, and the very, very efficient way that it's run, which we can build upon, and we're very confident that we can continue as we move it into the chemical cellulose market.

Roeloff Jacobus Boëttgerr

I think I need -- to your concern, and I think a very valid one, in terms of capacity that people have been talking, that they will be bringing to market, and that possibility of oversupply. We took that into account and, yes, I think if the world economy goes into a situation where it's going to be tough for the next 2 to 3 year, there might be some and will be some overcapacity. I think with Sappi moving ahead strongly in the area where we are the global leader and where we know we're going to bring very low-cost capacity to market, and the fact that we have long-term supply agreements with many of our customers, and our expansion is also driven by requirements from our customers to supply more, this will be tough for -- make it much more tougher for other competitors to actually enter this market knowing that Sappi is the leader, low-cost, and have a very good customer base out there, with a proven track record of very high-quality pulp.

Lars Kjellberg - Crédit Suisse AG, Research Division

One more question, if I may. Just final for Cloquet. What, then, happens to paper pulp and the fluid internal flow of pulp? If that makes any difference or just taking out your excess pulp, now, in North America. The second question is on the note you just mentioned, about long-term contracts, will you continue to take your price to NBFK as you did in the last wave of capacity increases?

Roeloff Jacobus Boëttgerr

In terms of you last question, with regard to pricing and long-term contracts, these are stated intention and we will continue to have a number of long-term contracts and that a good proportion of all capacity that we bring to market will be the subject of long-term supply agreements with very good and stable and growing customers. But it is also our stated intention to grow, also, our customer base and also to play more in the spot market with the proportion of our capacity. What our pricing policy is and whether we link it to picks [ph] or not, that differs from customer to customers, and from year-to-year as we decide what the best is to do for Sappi. And that policy we don't disclose, but a large proportion of it will be linked to NBSK. I think we also to give other people an opportunity.

Operator

Our next question comes from Goozy Ascono [ph] of Deutsche Bank.

Unknown Analyst -

I'm having a few quick ones. The first being coated fine paper market, we have been seeing that Chinese overcapacity now in the market. But can you elaborate a bit on what kind of decline in export volumes you're currently seeing and what kind of downtime, if any, you're considering right now due to this effect and, of course, in your core regions? And the second question really relates on interest expenses. What kind of decline should we assume is your interest rate, now as you're cutting down those most expensive bonds?

Roeloff Jacobus Boëttgerr

Berend, I think you, being the biggest player in the coated graphic market, would like to comment on the export volumes plans? The possibility of downtime?

Berend John Wiersum

Yes, sure. In terms of the export volumes, there are certain parts of the world where Chinese capacity has been very strong, particularly in Asia of course. And you have to draw a distinction between coated woodfree and mechanical coated. Mechanical coated is unaffected by this, it's coated woodfree only. And, there the industry's exports have been down by roughly 20% in the last few months. The downtime that Sappi is taking is very little at the moment and that's due to the fact that Biberist has closed and we have carouseled our -- those products from Biberist into other mills. So, currently we are relatively well filled.

Roeloff Jacobus Boëttgerr

In terms of your question with regard -- I would like to just add, on the European thing. We in fact have always, in the last years, been very, very aggressive in managing our capacity. We've done so not only in terms of downtime but by closing capacity permanently. We will continue to manage our own capacity in the best interest of Sappi. We have done what we needed to do in terms of capacity and, at this point in time, our opinion low-cost enough to take on the competition and to deal with overcapacity, and we'll continue to do so. As far as the interest expenses are concerned, the benefits of the refinancing, which we've done previously, what comes through our current financial year, and we're not giving guidance in terms of that, but our interest will be lower than the previous year, and meaningfully so. The big difference will come when we refinance the 2014 bonds and I think everybody knows the cost of those are nearly in the 12%. And our opinion is we should be able to refinance that at much lower rates. The last refinancing we've done was at substantially lower rates, closer to 7% and below that. So our $800 million, if you start talking differences of 7%, 8%, you're talking about very serious money in that regard.

Operator

Ladies and gentlemen, our next question is from Stephen Atkinson of Bank of Montréal. Please go ahead.

Stephen Atkinson - BMO Capital Markets Canada

Looking at the total savings, hoping I understand it correctly. What I wrote down was $33 million for South Africa and $100 million for Europe, and that would be over the next year. Am I reading it correctly?

Roeloff Jacobus Boëttgerr

Yes. We've set for Europe a minimum of $100 million savings year-on-year, and that will be in this year. In our South Africa business, we did say $30 million, but those savings will only start to come through from the second half of our financial year. I might add that we also have other cost saving initiatives in all of our businesses, and those are the minimum numbers that we expect to get.

Stephen Atkinson - BMO Capital Markets Canada

Yes. Like, I noticed, for instance, you putting in a GAAP form into Somerset, so these other smaller projects, obviously, would contribute. In terms of these -- so in terms of the expansion of Cloquet, does it involve a new recovery boiler or is that the major or can you give me an idea what the major equipment is? And I'm guessing there would be some cost reductions if you do a modernization like that.

Roeloff Jacobus Boëttgerr

Almost, definitely. And, Mark, would you like to, without giving away any of your competitive secrets, in terms of technology. Would you like to comment?

Mark Richard Thompson

I would just say that there are small capital changes made throughout the process. Recovery boiler is not a major part of the project. The recovery boiler, like the rest of the pulp mill, is fairly modern. And so it's mainly modifications to the current process that will allow us to make different qualities of pulp, between craft pulp, and chemical cellulose.

Roeloff Jacobus Boëttgerr

I think that's a very important thing that you're mentioning there. For the benefit of everybody, in terms of capacity coming online, the Cloquet mill will be in a position to swing between our current pulp and chemical cellulose with very little interference or cost, which gives us further, I think, robustness in terms of that business model going forward.

Stephen Atkinson - BMO Capital Markets Canada

Would you be able to give me the new capacity?

Roeloff Jacobus Boëttgerr

I think it's in the -- we've actually come out with a detailed, press release on the Cloquet conversion, which I would like to refer you to, but it's 350,000 tons, metric tons.

Stephen Atkinson - BMO Capital Markets Canada

Okay. And in terms of dissolving pulp. I guess, I don't know whether you can tell us the current price.

Roeloff Jacobus Boëttgerr

No, we don't disclose that. The spot prices are very quite, quite a lot from day-to-day and I don't know what the current spot price -- Alex, do you have the current spot price issued at the moment in China? They are $1,400 -- $1,450 per ton, at the moment.

Stephen Atkinson - BMO Capital Markets Canada

Okay, and some of your contracts are tied to the NBSK and some are not, I guess, as I'm looking at it?

Roeloff Jacobus Boëttgerr

Yes. Our contracts are mostly NBSK-plus a premium and our spot volumes, obviously, at spot prices.

Stephen Atkinson - BMO Capital Markets Canada

Okay. So that tells me where you're at then. One final question, the specialty paper where, I believe, you are putting in a Release Paper. How many tons and what's the schedule?

Mark Richard Thompson

The Release Paper's a business, which we've had for many years, has been growing steadily at very high margins. We do not disclose tonnage there because of the competitive nature. What we're talking about is further and new product that we're bringing to market. And here volumes is not what's important. It's the margin. These are lower-volume, high-margin products. It isn't that wood would turn exactly around but it plays a very significant growth in terms of our growth and future opportunities.

Stephen Atkinson - BMO Capital Markets Canada

Okay. So we will see better margins there. So lastly, on the dissolving sulfite. Are you able to sell any in North America or is it all destined for Asia?

Roeloff Jacobus Boëttgerr

We're able to sell anywhere in the world, and the markets are growing elsewhere. We're also looking at developing our business to cover more of the acetate market as well, rather than only dissolving pulp, and there's a good market for that as well. So we thought of being in every single market, but the major markets will remain in Indonesia, in China, Europe, and India.

Operator

I'll hand back to you for closing comments, sir.

Roeloff Jacobus Boëttgerr

Thank you very much for everybody dialing in, and should you have any further questions or require further information from us, we are most happy to deal with those, and you can contact Graeme Wild, Robert or any one of our colleagues. Thank you.

Operator

Thank you very much. Ladies and gentlemen, on behalf up Sappi Limited, that concludes today's call. Thank you for joining us. You may now disconnect your lines.

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