The European business continued to be affected by weak economic conditions in the region and their impact on paper markets. Although year-on-year profitability was substantially improved, with sales volumes 13% up from the lows of last year, the recovery stalled during the quarter. Rising input costs, particularly paper pulp, created further headwinds for the business. On a positive note, the sale of the Stockstadt Mill site was concluded during the quarter and ownership transferred to the Progroup.

Profitability of the graphic papers segment improved compared to the prior year on the back of higher sales volumes and lower costs. However, sales volumes were flat and costs increased relative to the prior quarter, which put pressure on margins. Despite the closure of two mills and general weakness in European graphic papers markets, we maintained or increased market share across the graphic paper categories.

Sales volumes for the packaging and speciality papers segment increased 17% year-on-year. In addition, a modest quarter-on-quarter improvement in sales volumes and pricing was achieved. These were insufficient to offset cost inflation, leading to margin erosion for the segment. Demand dynamics varied within the specific end user categories aligned with general consumer sentiment with self-adhesive label and release liner papers generally performing better than paperboard, which remains oversupplied in the region.

Variable costs were 7% below last year driven predominantly by savings for chemicals and wood. Similarly fixed costs also decreased by 7% due to lower maintenance costs and personnel savings associated with the restructuring of the business.

The North American business delivered a solid performance against a backdrop of rising input costs and taking into account the extended scheduled maintenance shut at the Somerset Mill which reduced profitability in the quarter by US$23 million.

Demand for graphic papers was relatively stable quarter-on-quarter but remained generally subdued. Profitability for the segment was substantially improved from last year but was negatively impacted by slightly lower average selling prices and higher costs compared to the prior quarter.

Sales volumes for packaging and speciality papers sequentially improved and were 43% and 6% above last year and the prior quarter respectively. Paperboard demand was steady with sales constrained by the maintenance outage at the Somerset Mill. However, selling prices came under pressure during the quarter, particularly for food service board grades.

Pulp segment sales volumes declined compared to last year and the prior quarter. This was predominantly due to timing of DP shipments and lower external high yield pulp⁽³⁾ sales which reduced due to the annual maintenance shut at the Matane Mill. Demand for DP was strong, and pricing was stable during the quarter.

Variable costs were stable year-on-year and fixed costs were 18% above the prior year primarily due to higher maintenance cost associated with the Somerset Mill scheduled shut.

(3)	High yield pulp = bleached chemi-thermomechanical pulp (BCTMP).

The South African business delivered another strong quarter with profitability boosted by favourable selling prices for DP and improved year-on-year packaging papers sales volumes. Profitability was ahead of the prior quarter taking into account the impact of the scheduled Saiccor Mill maintenance shut during the quarter, which reduced profits by ZAR174 million. EBITDA for the quarter included a ZAR56 million forestry fair value price adjustment which was ahead of expectations due to lower fuel costs for transport.

Demand for DP was strong during the quarter with sales aligned to production. Sales volumes were in line with last year and 2% above the prior quarter. Profitability of the segment improved year-on-year due to higher selling prices and lower costs but was negatively impacted compared to the prior quarter by the Saiccor Mill maintenance shut.

Although containerboard markets improved during the quarter, a lower than anticipated forecast for citrus exports dampened demand. Sales volumes increased by 23% quarter-on-quarter and were 10% above last year which boosted profitability of the segment. Rising international containerboard prices and worsening global logistics supported domestic demand.

Office paper and newsprint markets remained challenging with prices under pressure from cheaper imports.

Variable costs were 6% below the prior year due to lower wood, chemical and delivery costs. Fixed costs were 12% higher than last year due to higher personnel and maintenance costs.