MERC - Earnings call transcript Q1 2018 | Mercer International Inc.

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Operator

Good morning, and welcome to the Mercer International’s First Quarter 2018 Earnings Conference Call.

On the call today is David Gandossi, President and Chief Executive Officer of Mercer International; and David Ure, Senior Vice President, Finance, Chief Financial Officer and Secretary. I’ll now hand the call over to David Ure.

David Ure

Good morning, everyone. I’ll begin by taking a few minutes to speak about the financial highlights of the quarter, and then I’ll pass the call to David to discuss the markets, our operational performance, strategic activities and our outlook into Q2. this call, in forward-looking will that statements. note morning’s we conference make Please the of release and call Harbor Litigation according described the these Safe And to Securities more are provisions the the related of fully company’s I’d statements, with which to our Reform XXXX, the in like Exchange attention to press Commission. your in risks to and Act Securities Private filings

QX was production fiber EBITDA consolidated our in primarily in QX million quarter costs. partially pulp row, achieved to QX, QX. record. a highlighted demand This are $XX.X were by quarterly higher driving EBITDA combined million result was $XX.X to For pulp results the second growth prices to higher due a When we’ve by pulp performance. compared steady prices which new compared offset record with solid

segments, contributed our $X.X In Pulp Wood terms segment million and million. contributed Products our of EBITDA of of EBITDA, business segment $XX.X

In in the to QX to a You tonne moment. David almost Compared million. $XX China. can prices $XXX find in European XX-Q. about a and more up disclosures additional will $XX almost our higher say list QX was average have markets segment impacted price in by EBITDA positively pulp pulp the

to Our relative consolidated QX similar about at electricity pulp sales gigawatt XX XXX,XXX Total hours volume XXX was to sales about QX. totaled tonnes which gigawatt were down hours.

million QX. XXX of or or of reported compared million we We to income a this $XX.X feet of U.S. in sold about quarter addition, $X.XX to quarter share equivalent $X.XX income XX% board the of net the share with of being in million In net $XX.X volume sold the per the lumber about for market.

combined and $XX.X million which Our QX to legal our refinancing, $X.XX our per million expenses of recent earnings approximately share. basic income cost about $X for award, note NAFTA reduced by senior included the by related net about

$XX.X quarter. use of to of was a current. million shield continued bond reflect expense in in days quarter expense QX which of the tax interest completed $XX.X million tax refinancings $X.X the cash benefit XXXX, Income in our taxes taxes. assets million approximately Current few of to Our was million compared was $X.X the QX first the

As U.S. to tax for Government made significant recently changes you some know, impact code the how are the operations of most Federal changes foreign Mercer, the notably and taxed.

cash tax to current continue additional liabilities the new will in We year, any rules will that assets. taxes not the our by believe reduced result as tax in any be

balance The in in highlighted during was is was our increased shuts, by levels materials Higher capital NAFTA Turning Celgar’s approximately improved our and in the their higher result at payables higher line restricted Celgar’s woodroom settlement. digester mills raw EBITDA spare saw cash parts receivable with essentially for inventory flow, included of $XX offset performance, the expenditures decrease and to Friesau as $XX due driven increased by increase pulp upgrades projects and modest cash quarter. maintenance crane. excluding about mostly upgrade which prepare by of strong cash inventory million the spending approximately the accounts operating Capital included quarter $XX.X cash partially million cash during a our to increase. grew were and This QX Friesau, at million. and with to compared QX Celgar by increased being working prices by lumber along offset results only in a higher

redemption of notes XXXX XXXX. in period, prescribed of quarterly issue dividend also included completed the quarter due X.XX% in the new notice X.X% senior the early million with notes Due payment. senior completed in we in our XXXX In our outflows notes senior was cash $X.X million $XXX January, in the refinanced Our million of December due was to and January. $XXX

expense, trailing $XX.X which about write-off That from will On of shareholders overview we times the QX which net of million record a ends of on has I’ll performance basis, due our QX financial that expenses related deferred debt seen results. be redemption our X, decreased operational that of XX, EBITDA And EBITDA. financing our relative press And made conditions, early for David tell market discuss XX-month of has – include $XX.X our strong Gandossi X.X As fees. strategic million our to to and of release on have continued have payment to over a to $X.X the Board is June the and dividend yesterday our all quarterly result, recorded million of for you July noticeably $X.XXX XXXX. turn call my activities. primarily

David Gandossi

and good Dave, morning, Thanks, everyone.

We’re report for to result offsetting record pleased another Mercer.

of when quarter particularly Our both mills minor ran made markets produced pulp tonnes our the we the and strong, a temporarily and of generally in for pulp result off modestly products quarter, We recent impacted compared quarters this some on well, earlier as that our only XXX,XXX capital are expenditure production. program. progress upsets to solid energy

the the the quarter. for very ran balance mills of However, well

$X.X also Our board on million of shift a well XXX quarter two Friesau of basis sawmill performed million this EBITDA. feet producing lumber and

with $X.X demand $X,XXX we to to to exhibit million XXXX. have April’s averaged list per pricing list be pressure. per average tonne is Pulp $X,XXX than steady upward in almost synergies of with per an announcement In available, constraints. QX. tight premier on achieve by in to tonne continued addition, see In continue tightness spot per us price of growth which QX the almost as remained tonne, is $X higher $XX $X,XXX and limited $XXX indicating China, at tonnes In result, a in QX million European QX. achieved steady per The Europe, continues combined synergies we tonne. market prices compared prices exceptionally the supply created the top tonne, sawmill markets of allowed QX about to

demand $XXX per tonne and reflecting $XXX per supply. with levels net-net from to markets on producers, New combined steady global China transact basis. pulp business near tightness paper in a the our continues view, in NBSK is tonne In at record between constrained simply the

These highly limitations tension and along include all In a industry before, very addition other recycled discussed but downtime, China’s unscheduled are currently are Producer again inventories review in import and to is create paper recent factories of on remain The levels noticeable environmental today. situation low. the there macro beginning of closure to mills initiatives consumer which I’ll agricultural with a few to supply its polluting of fiber. market. factors this and rising we’ve combining reflect with age the pulp the

may continued into season on upcoming restrictions of in supply further demand pulp QX. we indicators be All due to move QX, industry. the are as the through to strong our Finally, market pointing there scheduled maintenance

markets impacted like were cost this pricing. Relative we were lumber of forced and not seeing impacted not result wood the additions, X capacity In $XXX are U.S. Lumber thousand in are winter Western which Better up S-P-F in the quarter, recent market. producers, Canada. per warm board strong capacity Lengths the averaged But for number yet weather experience and in $XX to monitoring QX, primarily demand also we fiber to both also QX, Western operations last wet the at record levels. we we U.S. The our Germany with that a European that’s some incremental years due is has to feet While, in and some steady harvesting prices markets negatively logistics Random come QX. from in some roughly strong benchmark up our very NBSK online two are continued shortages negatively and costs regions. escalations alter and did wood the conditions

Celgar for expect monitoring begin to quarter, toward And including will do an improved, service. plans and optimistic, vote on will scheduled offer. pervious And preparing weather while place. calls, on operated plan during some contingency Railway, We access there decrease labor mentioned not to we fallen which contract products for from attractive – Logistics we in unions the CapEx have prices forward, be QX channels we some lower-cost are wood we a our we well to mill. however issues of have two Canadian distractions any services are as as the we’re regions XXXX. at Looking Currently potential storm Pacific slightly there for be wood. harvesting conditions in the wood, have

mill the our $XX improve lumber and outturn saw great million with mill. planer modifications to and in investing our line We’re yields the saw to

screens and our in-feeds XXXX. to to improve on $XX we We spend mill’s also speed production bottleneck. about eliminate will digester and $XX Company-wide, million be CapEx in its – investing digester in Celgar million expect the approximately chip

and tribunals disappointed a treatment the with initiatives equipment. to rental to Columbia. plan I This year. balance continuation In more Germany. case, everyone to shuts the our to much other of about shorter-term very to our would mill equipment with replace NAFTA leases customized the for decision is remind like of With the producers relative fair expand we addition, railcar our railcar our fleet we were agreements respect of our for timing efficient given energy annual in of desire maintenance also program British

shut Celgar We down in XX XX major QX. starting days, down mill early The be shuts safely and and for June. will and Stendal has for both was maintenance completed. Celgar Stendal successfully days will complete in the for been

to required about This its Celgar reduction in addition, Consequently major XX can years energy every keep of QX maintenance. turbine and and original In of turbine. is shut you the sales approximately maintenance include offline a is electrical heavy will that expect three turbine months. project for spending Stendal’s all

world plan, QX quarter shut built growth. Stendal of things the industry will QX. in Rosenthal quarterly reliability. operations first to also forward another quality and step results and was invest strategic As executing in up, the from followed keep among class delivering successfully is usual, three-day resources our In our them sustainable, complete building and efficiency, in for we and for by shut a on summing results safety platform a Once shareholders we leaders at profitable illustrate which the assets this our

continue these competencies. framed and search opportunities as define disciplined for to growth Our quarter is And well. every Mercer’s improve by core we

creating were able we the pleased to the operating approach very first shareholders. to another quarter results and for report for value record result these our highlight long-term We’re way

up for our the so the of I’ll open now questions. back Thank the can call that’s call conclusion the remarks. to you. operator So we turn prepared

Operator

comes Capital first Instructions] the ahead, from of CIBC Hamir is Markets. open. line [Operator please, your Go line question Your Patel from

Hamir Patel

think, Dave, the going recently I Mercer forward unbleached product Hi, recorded you Can for that was how speak volume NBSK? to of we [indiscernible] to going and that maybe pricing similar that good the margins of produce, the year? should rest expect it’s XX,XXX compares to tonnes And of morning. QX. level in of

David Ure

big close a pricing just typically an Yes, at UBK moment and relating to time to market kraft. I in interesting mean, not because NBSK. it’s the unbleached shortages to for at discount is of the some pretty recycle, But fair typically for NBSK. the trades it’s Asia a of

Our really capture an run is to some value. just opportunity

So numbers. they’re rough

can run about There’s don’t give Taking of tonne. to just a will more that plant issues. like push of and which time a down facility a the you bleach plant making of without end when X% maintenance If on area plant those Celgar, in the taking to front save the kinds you’re about unbleached. having the time $XX our conduct in maintenance shut annual it us over down, improvement bleach a we’re you yield

it sure now a what nice for us. tidy, for I’m pricing it’s not all win So depend grade, a will it just on but that was holds, for opportunistic nice, the the little future situation of us.

Hamir Patel

reports Thanks, imports. that’s helpful. the for issues some And European ongoing about we saw grading

How are of level are you pull Just back? think seeing to would about you into you curious that seeing producers want volumes the may what U.S.? And sell other changing? there? you the that be Is

David Ure

sure. limiting for send, for split What’s Yes, to we I the might technical the into little a U.S. happening for be the It call, ability in real who these call, U.S. been but issue understand is European’s it’s think, a XxXs market. those European really things. what for the producers

very bigger XxXs. have then and cut sawline, timbers, we to the on Because lines. it in the which our And we makes We caught to we’ve product board, ports a some the are as we in traverse we’re been spike through split European the identify selling that still little a in the that fourth – up that going have, we’re Europe, result, are these grow. limited higher-quality produce planar And going XxXs a the of really sawmills is knots quarter. in into to we U.S. of re-grade. into little splits, on for knots, the and grading disappointing as the bit XxXs us. logs U.S. of that We U.S. just got most had We nature graders XX% agencies splits. So the needed but have tend retails the most issue. called production for which – not difficult in volume catching the are you product market, saw, them had we And

Some capital alleviate we’re problem. upgrades or of eliminate that the should will to help doing

So it’ll better optical return. we’ll grading, and the sawline us better be putting a a in horizontal give saw

We’re kind not like optical grading the down, our Mercer very took thing. box extra the other It’s producers. guys the yet. don’t in that the situation European grading the put line of mean, all capabilities; line, penalty some have enhanced on seriously. We slow the We of manual. I

over months haven’t for issues any had now. So any three we issues for well had haven’t touchwood,

But U.S. I as think all. exactly we’re issue. the heard European grading, all and chips their of build few struggling that a I’ve it number other take are been producers even into adjusted their the I at there months, of and seriously, that. for European penalty And that’s same the through didn’t who in others, box haven’t really producers So on one – are there’s through

Hamir Patel

have Thanks, enough, Sure for I’ll thanks. all the Dave. in I back get That’s now, queue.

David Ure

Hamir. Thanks, Okay.

Operator

please, Sean Go comes your Your from ahead, next is Steuart Securities. open. TD of question line

Sean Steuart

guys. questions. Thanks. Couple morning, Good of

First on fiber costs.

Germany noted BC both guys the QX. in You inflation and in

You that’s indicated QX a expect you lot suspect related. And relief. some moderate of for weather I

for expect the mills. versus German of if relative wondering magnitude might contrast the you Celgar Just release can you

David Gandossi

I think more – sawmillers to to of got Celgar’s behind unpredictable. lot the in weather. due a be bit little A the going the

so pulp so get being like focus would is traditionally up the problem, logs It’s inventories that sourcing that And the on focus The saw back logs heard the trucking and a so are on. to can removed. is their catch really regions logs. resource about saw be to the our you’ve sawmills we closer, not from It’s get the up. at issues and

better we’re higher that, get I’m and relate towards predict. So to our as way And working hard Europe, in we to over it’s the but move cost Stendal. through things really to expecting summer,

had because And supply for bit looking didn’t way may intermediate We really Stendal they mean, did put you any the to because producing north, marginal fourth a the Friesau of Germany. Baltics I weather know in release Rosenthal a here marginally higher-cost struggled curve with related the into curtail at to right a cost So lot inflation. And flat now, but we it’s quartile. up the on have Scandinavians market. – with buy cost its pressure for struggled over the our Rosenthal, the need similar with that weather. to wood, But Friesau operations don’t nice in We they it.

As Scandinavia, subsides, everybody the the things in come and dry down back Baltics as to pressure in out, gets and work fiber cost should we’re Stendal’s well. hoping

Sean Steuart

I QX, on expected would a be relief in moderate guess basis. Relatively sequential

David Gandossi

hard It’s say, yes. hard mean, to – it’s Sean. it’s not – I to Exactly, Yes.

things though there’ happened pretty big of some here is, has the that over been storms. One

lot we’re So would how wood to that needs get there’s of the positive to come waiting price. actually. and out It see there that impacts a out,

Sean Steuart

Got it.

we’ve I’m guess, knock wondering question, on isn’t with midterm can contraction papermakers, to the if this it’s that the momentum, for on squeezed side pulp another seen – NBSK maybe, margins Any for significant Mercer of potential probably capacity could North companies. especially enough and these that from from than market. comment some in pricing? to I for Second the being demand for things near view out sustainability tissue affect how under over on legs But margin thoughts and agree the in tend to your America, destruction you I of non-integrated coming regions, a

David Gandossi

a great question. it’s Yes,

been of rating grades. Some lot actually to the been than things mean, I not they’re margins I long premium a a think on about, a there’s better of mean, are lot time. their improvement so they’ve for price guys, bad,

reason six established spot, are is prices you think tough is the advance. I typically that of tissue. sector sort And that mentioned in I for think the in as months that the

So – really get in that of Having they I one been into the up could discussions they’re fiber having. is able offset – reduction increases said price June in NBSK happen to mean, keep that, them worst have pricing. with to really to kind haven’t not price cost increases or of any probably things as go they they’re their any to

they will so the would push really that. – need for push to to hold and that obviously, they’re that – So through they that hard or if they’re their successful, – price can going product;

yet. So have I here don’t don’t hurting happen destruction – I near-term. fiber mean, it’s mean, – I anytime large, demand I don’t in I it’s some, and – see this, it’s like to I inflation got going by I not but be don’t really that mean, the we think to

Sean Steuart

for that guys. That’s Okay. have, detail. all I Thanks

Operator

Your next Joe is ahead, please, Pratt with comes open. Go line your Stifel. question from

Joe Pratt

and XXX,XXX Dave I Yes. on with in comes SCA Good Dave. believe, morning July, tonnes?

David Gandossi

probably now. down Yes, are Yes, June. they

Joe Pratt

Okay. in or situation? still Is Metsä the production? market, that that And Äänekoski, the fully what are about ramping they

David Gandossi

I think much Joe. I running and it’s it’s think well, pretty

that part no a and or the an know issues It’s pulp it’s similar inventory, inventory you in came spot as got sell inventory ports is market, time August in is mill any we have meet of to because there’s in the so can’t anybody our no I online don’t situation. and inventory, it’s There’s inventory, our there So tonne to we’ve a the getting no rest contract any of Europe, have market, last any don’t we anywhere China it’s placed. we’re don’t and the incredible with commitments. all they what the customers today of just year, think their for in are in in listeners dealing having

up say that’s So July this are net bucket. Äänekoski, for you mill year June all tonne maybe right we out add for sold XXXX SCA a is the The now. early dropping in which starts as or XXX,XXX

Joe Pratt

be And that moreover are add? to XXX,XXX going in we Dave,

David Gandossi

right Well, making anything they’re down six not now. weeks, for

we So on annual will get basis. them

Joe Pratt

Yes, got I it.

David Gandossi

don’t So for a I this don’t deal year. that – see being big just

Joe Pratt

after Okay. onstream? Any coming announced projects other SCA big

David Gandossi

pretty there. mill mill to and still run will manufacturer Chinese that Government, integrated. and serious that it That was know Industry up. it the if issues be versus some project they’ve a over Belarus what is equipment There’s market extent between started and don’t Belarus got the rumor Svetlogorsky. joint when goes And will I never

Joe Pratt

Okay.

question. quick having What last question, What was your the Next year? lumber the I was read for not – apologize business EBITDA XX-K. for

David Gandossi

about It’s $X million.

Joe Pratt

that be do expect – to And you

David Ure

With well Rosenthal was $X synergies at million And the that of as mill. –

Joe Pratt

EBITDA expect this Okay. grow year? Do you that to

David Gandossi

be sure. do I our we’re for payback at said I’ve Yes, previous And well will significantly. of Friesau as it’ll think all improvements, the under grow quite capital our calls capital on we that hurdle rate. three-year spending

Joe Pratt

decision made any have Okay. And then you sawmill novo about de a buildings?

David Ure

About which building?

Joe Pratt

new sawmill Well, somewhere. building

You’ve in discussed that the probably past.

David Ure

Sorry, on that. in see all in We putting our working for well. Yes, didn’t tremendous Stendal. got sawmill looks synergies been Joe, so of the It We’ve you the at attractive devil’s us. opportunity we’ve finalize to a The hear in a engineering. just detail. feasibility really like

make logistic cope all all the doing of that We’re to quite we changes. this promising. fiber studies looks with can But those studies, sure

Joe Pratt

expenditures the would what couple the increment you from you’re next to that? Okay. that for And the building while mean, I years be made of up, go-ahead, capital if annual

David Gandossi

it, will million – million. build we that like and it mill it’s it I do for mean, we I in XX somewhere total looks cost EURXXX probably would if to around Well, if be the be, EURXXX think, months,

Joe Pratt

Okay.

March big a Okay, cash that to How and come in had nice December lastly, XX. did from jump about? you XX

David Gandossi

pricing, it’s and of capital lot some performance, as from then as a working moves those the and of good pulp a things. well, kinds inventories, working capital harvesting Well, Joe, winter

Joe Pratt

Okay, I done. answering questions. am Thank you my for

David Ure

Joe. you, Thank

Operator

open. from line Management. comes question next with ahead, your please, Lawndale Your Capital Go is Jason Doyle

Jason Doyle

briefly. apologize already has by a production and this the mill? But guys, you us but number disconnected can And one. quick just if I I got been Hey, sales give covered,

David Gandossi

Jason. that, Yes, I do can

thousands of in let’s of Sales XXX.X tonnes So Celgar, Rosenthal, volumes; first with Stendal, – Rosenthal, Celgar, production and and start in XXX.X; tonnes. Stendal XX.X; thousands XX.X; volume XXX.X. XXX.X.

Jason Doyle

Okay, great that’s it from me. Thanks.

Operator

question with line Markets. line ahead, next please, Capital Go the open. Charan Sanghera comes is RBC of from Your your

Charan Sanghera

Hi, guys, good morning.

earlier looking that X in in million – and on And touching industry bit on being then are X.X – adds. for the saying you’re question industry Belarus the Just – release it’s a the QX It’s in tonnage just at mill? had XXXX. yesterday’s release, saying capacity incremental with NBSK about press you million the I Belarus you’re tonnes. Joe’s guys your press

David Gandossi

these that Belarus Belarus – of yes, in experiencing. the the is all tonnes. that quarter, we’ve XXX,XXX then reported been we were the component other X we million fourth And shuts expecting unexpected

Charan Sanghera

Got it. it, got

– those looking X%. at are, to X% So, fair implying what say? of of Would about for do you, rate and growth that numbers that’s guys to demand NBSK kind be

David Gandossi

sure is not I’m demand growing quite pace.

I like the in X.X% think XXX, tonne probably. XXX,XXX X% maximum XXX to range, it’s more to

Charan Sanghera

Okay.

kind then, And than why would of would market the tighter stay So offset you of that I nameplate with that’s imply the just it the capacity? guess, feel the some is outages.

David Ure

– becoming fiber of paper keep paper And year more it much it’s diminishing a year, lot mills. is these I creates for looks it’s made a in agricultural for this recycled aging statistically to so for that issue the mean, And pretty of a just the quality the – going things older the demand same. demand drivers a it like get developed to last then China was swings, industry pulp tough fiber. are that driving apparent year Yes. growth be of so more about the products sort like pulp, absence and are talking giving you of from that other But that’s demand I you more number. I’m it’s virgin

a other demand – just not drivers whole I lot and having demand’s progressing conditions, growth game think, a number. developing straight this how because a said in are than them, the economies, – is people these that, thing. So not there’s linear growth And products. it’s size mind in number a in into – of of thing the It’s other rapidly my the a as changer almost specialty of demand strong the economic

Charan Sanghera

Okay.

pricing between on if to guys America, pulp question what and push would was that you on saying were North are you seeing in China. Recent there’s dynamics Ritchie prices wondering pushback in quick another America I’m in comment China. article North Just softwood just regard. that easier and

David Gandossi

China it’s Well, pricing from highest-margin for perspective, has the been pulp flat but globally. pretty also been a producers market

So catching other that makes hard just while. sense We’ve early up, to China I up going in it and – the And like a and what a is me. it markets. mean, been we’ve strong market. pushed not for It’s think that’s to got I stay it’s

Charan Sanghera

got might not maybe it’s So a of ahead signal just but it. turning, be bit a you’re

David Gandossi

I think this really so point. don’t at

You right to diminish now. see that all the at softness price can’t with regards

Charan Sanghera

Got that’s it, guys. right, got from Thanks, All it. me. it

Operator

Your next with Adam comes Knighthead. the question please, of Zirkin is from open. line your Go ahead, line

Adam Zirkin

for production I I numbers congratulations been maintenance year, happening particular, perhaps, zero looks, have you; quarter. was, the gentleman, insight you, the might there? give number for a little in quarter. a low perhaps, right? XXXs light Stendal, sort of, some in as to what Hey, at David, on question think great last the a think a really Can

David Gandossi

Yes. Stendal often, miss Adam. very doesn’t

which away And our crashed transformer is in Stendal, was, on of failed, what grid that December down, mill, the kilometers a so there some mill. was without happened which making took the our which excuses, town whole from XX,

machine, speed, And of of a did at all press rubber just And imagine a you full so is roll. it what drier then and across the belt a torqued liners running stops. on and sudden, guess, paper big I a the one it if everything

it the got and X.X-inch that rolls a rubber when instantly, it. roll, thing the that running of it, from that a of are in of started And repair roll. around belt in. a year, press that had XX-tonne we failure sleeve out, stopped the a roll that sudden press all the required mill these over a So And to like back it’s early down, the that take rubber delamination runs roll all it way catastrophic us put pull were we as

really, that And that primarily, so impacted was quarter. the it issue

Adam Zirkin

perhaps, some grid question susceptible should to the misunderstanding. illustrate Just The curiosity I powers and know failure? out mill to why so is is of a itself, So or a right? this it answer

David Gandossi

– and way, by grid. can’t like, itself These work you halfway. we’re it don’t we’re taking the from to run grid, sending We instantly. power power island Well, doesn’t that the out

Adam Zirkin

in Europe – you. Got Over

David Gandossi

but you Unless on wouldn’t. an conditions running islanded normal you’re basis, under

Adam Zirkin

You wouldn’t, got it.

I point? the call out and weather. at middle there else fiber winter, we think on bit cleared Europe quarter, of in or in in issues, the certainly last a was in talked Have those anywhere issues system? availability given it fiber all of about Are Europe, any the availability frankly, this the

David Gandossi

year in like, of that some in okay. few – just lot of was the we a curtailments, forest months been haven’t areas parts We’ve warm so of can’t We’ve into. of you few quite north. go the any had you line – got there a curtailments up The first was just weather

more we of to wood get very to and have One create this that close store our also store areas where we more referring where paved extent I’m logistics. to train strategies can our has been at, the we we roundwood, mill to down strong

some cost use get the It’s higher logistics we from where expensive. se, into in that can’t And to took wood can and the of coming to we forest should the we to the slightly as mill point that the time. Germany starts running. hit to to be out, be not bring is, lot forward cost signal think quick wood of So tends It’s storm that the that’s just a near see when at keep more wood for the per going I our way available, there’s wood region, the that further got mill, have And the collected. has areas very of will that market reductions go it of – because should been to going in blocktrains wood. volume a

we’ll that. of advantage So taking be

Adam Zirkin

flat. cash, more of the moment. allocation or When Is – it. more you’re as at that You new shareholders? the back dividend to you’ll move could considerably right? perhaps, cash just the of, you that sitting sawmill, generate this how Got the you’re left go I hold economics on for if on, capital these of markets million if the year? reason holding focused a $XXX there that, principal we if distributing to what through Obviously, looking willing is, David, it’s on sort not

David Ure

on. And at this to we’re I every talk is Yes, a everything as paying some the We really hints for improvement, mean, and on ourselves a about what growth, And search going a our know, execution, by describe to for think you what full company. ourselves running point reduction, be acquisition cost It’s disciplined. question, going the when competencies I We in you platform growth. in describe growth – as on assets not I is comments having strong can cycle, imagine of continuous finding could And all fair make so it’s shareholder value Adam. create we from I world-class price take is, very type asset. very core our an we’re expensive. for

what And cost don’t is, because at are you three incremental them, sense, from big that that that pulp great of pulp determine So from mill. these we’ve tonnes we or energy a a been growth better, studying every very having pulp. incremental all I big a with mills. all tonne get the of three-year makes sawmill paybacks see purchased. well. hard have to on beside like we think about we And a capacity fixed pulp of to have typically, also see, incremental at for make synergies of improvement organically. sawmill We those Stendal as any the ton room sawmill along feasibility benefits And to the And you go capacity considering

think pretty I So some internal growth we’ve spending. got opportunities from exciting

We’re them get get working proving out sure say that to hard I on all done. way making we’re say these are the execute, Because always dialed we of things in. that going we done things and we

capital allocation working strategy. make So it I can’t hard – to context changes board that announce our And the time that to felt on them of today. our the it. any it’s now we’re opportunity, in not But

Adam Zirkin

sort at the respect referenced, million think, the Can be Understood. earlier million. in tender. And total the sawmill to I appreciate call, you EURXXX cost I thought EURXXX you would to the that With your give the that Stendal terms least, or what there the of sense cash or economics – be of that of of perhaps, would a in at generation flow lumber what some EBITDA can metric current – project prices, we

David Ure

I’ve or got repeat. will I but Discretionary three-year careful be for guidance, better. about Mercer Well, is payback capital to

capital three-year So you the imagine or kind all that can of better. payback with

Adam Zirkin

or understood. helpful. On EBITDA on Understood, flow? very That’s cash

David Ure

On EBITDA.

Adam Zirkin

David. That’s Thank I you, have. all

Operator

comes from Walthausen Company. ahead, question with open. [Operator Instructions] Hinman & your line Go DeForest next is please, Your

DeForest Hinman

questions. Hey, thanks for my taking

back of to the Going use capital.

seeing purchase we’ve We logs. Holts have in in And then economics as have pulp and we some using the guess, go, to a to this more Is new unit this railcar well. [ph] business and approach up terms at these the and I in we’re been investment mill, on? a sawmill group, And been Mercer that making everything [ph]. like of thought saw sounded Stendal Mercer holistic of, early it kind that of investments Holts logs

David Gandossi

to approach created we strategy. And procurement logistics was [ph] of Holts that. think way think about how Mercer the Well, and a our as about we result

one the we a voice unit. have wanted We to in to a didn’t want have and northern southern market. So

to a We’re little disconnected each other.

strengths behalf well. you of mills of on putting we logistics procurement Mercer was service [ph] all woodXm. the the And pulp know, into we all and both procured them together mills. individuals call, Mondi, Holts partnership they what And have our Mercer wood and others So And as as organizations in bringing one. of we and the with saw

whole right which situation us that wood So organization, yield right we saw logistics price at at get right and through log of an place, The procurement time helps that XX% a is, you fiber. unit strategic-thinking it’s ensure – at the know, or thing. the organization is that a of the sawmill and a residual kind as XX%, optimization is sawmill the

log, saw make to XX% You goes the pulp mill. out of rest the a XX% only can to lumber

got the cost big wood need sawmill not to lowest-cost So it’s a roundwood build feed if industrial wood. – curve a you circle the got wood. logs the you the new all have that a and a like you a for you have mill, we sudden, and which and side, your procurement way, are wood; needs, beside a you’ve got call for And at Stendal, that it side, it’s mill, imagine saw pulp by When your or you’ve a mill fiber. have highest-cost sawmill you right-hand left-hand of – at a it you’ve got of the source

your buy, replaces that’s you then like different goes now, lumber, that that’s you we closer have to the wood. type get it that so that chimneys, the at for – mill. Rosenthal else. your our used wood saw to into the highest-cost been feed to creeps make the go didn’t profit, we’re residual You bring right-hand you to wood. marginal procurement can having recreate have and to somewhere all to and And pulp your curve of don’t and a be make a just far of you high-cost use procure kind buying from previously it’s into Stendal. circle enough turning higher-cost cost fiber and I it in displace and haven’t lumber way just fiber that what logs got flat up, to said log mill we then side, We’ve And right buying and because residuals the one earlier, very why, And around we’re and trying

DeForest Hinman

years? that then that? next you meaningful is how year, understanding. of an two guess, leases Can railcar from And CapEx, and savings involved. helpful some touched fall the that’s you briefly How on over about the then Okay, talk off, cost of And cadence investments. the the those I

David Gandossi

Yes.

a so The that annual that specialty on same are we’re length highly starting on-track rentals. are on carry about the railcars, what railcars regular day railcars not to be XX% So doing or Mercer-design may given that way of our it XXX maybe of of are today, efficient rentals ones XXX the product that XX% market to them roughly for railcars train railcars more any think there the do. is, and the traditional – – most we’re for securing would shorter-term be Mercer, products those on available

financing agent. So material, railcar. say, we cost use lease it’s cost less unit the we a is and or efficient I of transported to we a lease, for buy we’re much or particularly is when the – lease the them efficient when because more – The round it’s and the going we them do numbers. or same It’s the railcars, built, actually, and replace more longer-term – have from of manufacturer what them less

we perspective, not we’ll to work, leases. all we’re So putting a but the bring if you if further efficiency have and more be up, amount cash flow per really cost to long-term spend like. you can the And logistics, railcar won’t going away have really CapEx of se, equation on then you railcars market. local buy piece XX% is, go the the it’s And go from into to other then it wood efficient

got So in eastern cheaper we’ve the countries. wood out

a have. the whole keep of the and basket we’ll so domestic so that go the pick that helps sort reduce wood wood purchasing, there, helps on benefit of down, Germany, And we bring the pressure into which strategic it to it cost it’s up,

DeForest Hinman

Okay.

different So maybe in just way. a

to XXX those So it cars. get non-optimized design want? we you’ve does the long How Mercer take to that got

David Gandossi

Yes.

will we coming the by start end another on have railcars in of the XXX XXX year, middle by top year. that of next And those have the of today. So we’ll

DeForest Hinman

I’m it on ramp Okay, notes, said, my going Friesau, the old we’re that’s helpful. up. at to sawmill; looking And we

goal million an XXX XXX annualized million is basis. hit Our on to to

update strong aren’t guess, with anymore Your quarter ramp? feet. annual for board XXXX capacity the Can the because XXX production that that in is, production you on what first was I million us numbers driving

David Gandossi

the based current lumber to mill million somewhere million configuration, Yes, on of on we think of board per and two year XXX the shifts. this capacity XXX feet running in of that

DeForest Hinman

China? Okay. out once this, in – – then asking opinion you kind longer term, different of OCC reports do again, this is coming touched OCC briefly, And you into that pretty allowing China, in that and lots this on the in see side? you do in once terms you less on Or Do going as what they’re your loosen there’s I’m of of anticipate then OCC be on there’s they’ve there. to firm, again

David Gandossi

To don’t be, question. been I import, been course, be shortfall’s their in to taking that or know recently. permits they’ve super was was who mean, coming, OCC. how the that’s getting a know basis lot and some a to improving qualified long I’m and were On to what guys big not – going it to permits It honest, how the use answer unfold. the of a slow I them I the I going of for that China get have product concerned really but net know lot to of

serious I anybody think garbage. is importing about feeling China’s else’s my not that

going pretty and So China as long as doesn’t their sure is and country. okay. making what’s it clean the suboptimal, But it be was, any that be kind in coming to is stuff auditing I’m they’ll in arrive standard, sure of, reaches the of

DeForest Hinman

picture, bigger something company? down with missing the just people price. with then share And year-to-date. Are the – thoughts maybe just, maybe your on You’re

row. quarters record a in two had You

spent can’t talking really that something deal being the about sometime You market not time capacity additional with.

-date. Your year-to stock’s down

to share not a You’re repurchase. do looking

David Ure

depressing Forest, you are really me.

DeForest Hinman

has long strategy a say shareholders execution time. very been your good. we’ve Well, very would for I been

Your great is balance shape. in sheet

your refinanced flow, I And record- have you debt. free cash Just think a stock. and flat-holed

missing? everybody is what So

David Gandossi

we is got the start some be bigger recognition can in singular not changing, points my of new Well, on our changes the and on and space. feeling wrapped at around would the and demand that rapidly supply looking and how impactful these how we world data axle capacity, of is enough

us growth and market business our cost so Longer-term, assets. basket, huge the in in people in believer the speed all huge future just it we’ve are really they seen that capacity and just, personally. optimistic I’m with be And a will, excellence these very very for business, As haven’t in paper there we’re is a front clearly. the to significant of And modern with strategy. I building I’m It’s a bump global is I of calls, seeing mean, to is entry operators curve. a a platform and on – steep barriers to niche and this Mercer say high-cost there NBSK small lot been

to We’re a it have And in to to in excited and very got the opportunity in we in because chance be which really world-class for NBSK growth, our lumber us right about performers both going feel are long-term. do we’ve we like invest good pulp. – organic be markets, and an

I platform that to while I you to the take appreciate going the it’s But performance. Mercer – think see through really a is disappointed little the share just – in So, to people it’s is. agree with what we’re taking there leaves

DeForest Hinman

the metric make mills, And In Okay. replacement-cost build out, maybe And comment. even the the more appraisal any is hypothetical about to the putting think of to like just in mean, the in of sense in stuff it a mills, Finnpulp I the going of far that’s hand some Finland. one bush. does versus two giant for mill bird more sort deck, the

sized good isn’t Well, any have producing comparable is, got versus right Why Mercer right $X.X saleable spend, going Finnpulp’s asset now. the number of looking new capacity? mill. don’t the you’ve on You or what hypothetical three market a to I type now. some at big good know billion pretty as those ones

David Gandossi

do And producers nothing forward the great when of big the got security can of with appetite age question. assets but agree the a paper they fiber up. I they’ve of going about of you. it’s go ensure value think you industry, to the Yes, the our

DeForest Hinman

prices done other Have banks? of the mills ever we for

David Gandossi

can’t making And than And is anything there’s more fiber or country. close that in development going it we to se. that financing. of than a a would a I We’ve developed over to But Finnpulp mean, other like mean, a what mill mean, with are. I on less question it’s it today. a billion mills financing not we it’s you costs per – put project the that $X you the probably, depending build right lot looked big in mills. where understand to a two Frankly, good what significantly No, at it’s for of tonne we now. do years. you our And a impact I market about say, be, the don’t fully capacity. of pulp built have

to because pulp we if are did the be wood, to for think fine. I things. So, that’s these maybe inter-point prices and going astronomical really on be of some that’s get case, okay mean, be we’ll e if prices a lot But high. built, maybe they’re going it’s they

DeForest Hinman

my for Okay, you taking thank questions.

David Gandossi

DeForest. Okay,

Operator

Your next Dan Go line your question from please, ahead, with Jacome & Company. comes is open. Sidothi

Dan Jacome

your And paper thought very machines? my of or interesting assets, an company, you presentation landscape of thanks wondering Yes, be of telegraphed online, longer-term. all answered. for your well if kind That’s sight was new was a was how it, for can by be And of I history good machines morning. on out absorbed by most high going my to maybe tissue course, opportunity refurbish just the part that wondering for then been Day and then question was will I your distressed of is I high-level an new right level, you break second then the – for the that’s first regarding about it future capacity now. with what that but of been think just have of Analyst overall questions much NBSK line coming very you’re lot. kind to I saying

David Gandossi

to tonnes North going paper, forward relatively we’re the net consumption here year is Asia, maybe on yes, America flattish some kind overall, Southeast in net a a X is growing expecting million pockets; the in tissue of side in basis on and Middle the Well, demand there X.X what near-term. East on growth million in U.S. But

correlated pretty is lots demand happening On a earlier, is as of bag. was saying to mixed all at the It’s good. consumption along. with paper at growth moment. the so all paper consumption chugs to quantify products. Paper paper globally, is good there’s It’s the and generally, nicely GDP, I global healthy But consumption pretty different hard side, of pretty

So I just think it’s –

Dan Jacome

distress then Yes, observing be, what’s And any or it was same distress. where on this I who is is tonne kind Okay, still the at just curious, and of commentary that the Analyst the asset landscape Day? to going what. does. like, then from

David Gandossi

assets Or talking you paper just – pulp assets? not I’m Are or

Dan Jacome

the too on Would of question will think that’s so side you distress fruit be be kind lumber more for pulp? do where on – the low-hanging asset? or it Yes, is,

David Gandossi

what at. you’re see I getting

I So think we’re –

Dan Jacome

For future M&A.

David Gandossi

Yes. are we I’m What got saying to that is, been sheet. We good for balance or what a growth. trying I’ve poised signal,

flow generating we disciplined. We’re cash good are grow, want we to and but

don’t create You expensive shareholder peak the an at value buying a of by cycle. asset

if And expansions for combine really our if sawmill needy see, existing you you Stendal looking organic good And optimize big in parallel can better. good the it like I we that the won’t to in dial. And move males, don’t because be with That’s Friesau, it some do to a that’s know payback is to that capacity have start said, focus a and a really accretive we stuff our or we all so will three-year a pulp – update project. focus enough do new we growth.

distressed buy going not pulp we’re So mill.

prices the a We’re paper it’s tiny right little I think not space guess, in thing right – not sawmill distressed mean, unless there’s thing – there high. a as now, that I so such don’t lumber we’re I no doesn’t now you’ll make,

message. it’s really it’s the organic main think story, So I the

Dan Jacome

chips want to how wood okay, going terms exactly mills from – much by the numbers? are you’re it’s just much Right, created all have clarify that, Or you from you directly out to And then sawmill just in chips wood broken pulp lumber mills? your so hopeful. the the transporting to pulp of – the how migrating

David Gandossi

Yes.

chips So they number regions of saw from a buy good our saw mills pulp where residual in operate. the mills mill

Pulp to we supply many and XX% big very needs from requirement of it many mill sawmills feed today to buy Friesau compared Rosenthal’s mill is Our fiber They’re about others. sawmills. it.

Dan Jacome

Right.

can’t spread own out, – your don’t you be want You as they if assets? mean, to like it coming all be it

David Gandossi

feed that there big fiber to is sawmill no Well, could a the produce pulp. for enough Yes. enough

Dan Jacome

good, thank that’s All for. that’s No, XX% you. looking I Yes. was what, what right,

David Gandossi

Okay, super.

Operator

David telephone turn are I’ll the Gandossi. There call questions at this time. further no over to

David Gandossi

joining questions. in everyone, the call. all thanks, Okay. the Appreciate Well, for you listening

As calls you know, I always offline. Dave happy and are take to

Bye don’t now. for anything call. again. a give us has to anybody want if Thanks ask, further So to they hesitate

Operator

conference This concludes call. today’s

disconnect. now may You

Mercer International (MERC) 4 May 182018 Q1 Earnings call transcript