MERC - Earnings call transcript Q2 2018 | Mercer International Inc.

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Operator

Good morning, and welcome to Mercer international Second 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 will now hand the call over to David Ure.

David Ure

Good morning, everyone. I will begin by taking a few minutes to speak about the financial highlights of the quarter, and then I will pass the call to David to discuss the markets, our operational performance, strategic activities and our outlook into Q3. morning's we this statements. make in note conference will call, forward-looking Please to to according provisions statements, press of and and Reform like Harbor the which Securities XXXX, with the in your the would And described Safe release Litigation are of more to in to risks the related Private fully Securities I the Commission. call these filings attention our Exchange Act company's

that affected pulp quarter, last by partially solid the the shuts, be estimate our along movements. were with QX Celgar heavily loss This were the mills. by million program about the markets, favorable pulp These which by discussed with along results scheduled foreign supported $XX improvement. influenced exchange was maintenance QX, $XX.X results was we and were in and sequential to production impact costs we QX associated EBITDA million are offset our lumber of direct offset $XX.X million. to Stendal higher prices When and of pulp which our negatively QX. price to As lumber with energy partially total consolidated compared schedules QX by and compared costs

escalation sequential We also resulting QX. reveneance from the weather fiber experienced some reduced in cost, of from shortages

EBITDA In terms million. segment contributed our of our segment segments, contributed pulp $X.X $XX.X of and business products million of wood EBITDA,

$XX Compared the And the to $XXX quarter-over-quarter. As prices European segment of usual, XX-Q. while China to in list QX, by relative impacted QX EBITDA pulp in higher average was average you price can additional over positively up tonnes find million. pulp QX, our price was unchanged over disclosures

tonnes Stendal's being which majority energy totaled due down almost scheduled down one sales The of from due hours, about the production sales gigawatt down gigawatt downtime. maintenance. totaled of turbine's about was scheduled was it's to the which relative QX. was X-months XXX,XXX tonnes, volume to electricity Consolidated QX XXX hours pulp XXX to Our for XX,XXX lower

slightly of being of On $XX.X QX. quarter, U.S. this sold for reported million down We the the side volume wood feet net only board product with equivalent quarter totaled lumber million the of our was we income of tot about this per XX% to the share sold about This market. $XXX to of the QX. or net from per business, income $X.XX million $XX.X -- in share $X.XX sales compared or of in

senior $XX.X down $X.X benefit QX approximately $XX.X Our the interest at expense was refinancing million, $X.X which completed in in Income million QX. reflects quarter-over-quarter of flat notes the from million, current. which and quarter QX, of rate XXXX, expense in was was the million tax

our Our these quickly. be continues of more current-tax assets. we And to use assets expense tax grows, using profitability will reflect our as the

Turning to cash flow.

in will during and receivables the in which reverse the in $XX sales quarter, balance The cash periods. We accounts occurred million Celgar net of David in higher million. increased approximately pulp subsequent $XX scheduled quarter. and Our Lower more result stand cash approximately about an were timing the to this speak shut, from activities our late to were capital lower QX moment. to increase cash a of capital, was maintenance we $XX the driven payables in compared increase to quarter quarter volume, QX, resulting due in which working reduction expect by a in million by during on in projects, accounts the that

July which relative our million the also quarter, XXXX. debt in facility to slightly is to dividend a made see rising approved about we on from for dividend press board October is XX successfully of a XXXX. our Our record terms turn Celgar quarter, XXth, extended be all net the now the you payment. to revolving yesterday, has our release our David included That the QX our XX-month cash close loan And quarterly And shareholders to due EBITDA. $X.XX basis, my XX-month overview million Gandossi end On CAD substantially the financial of I performance which, market will is EBITDA, to trailing September the out Subsequent $X.X and results. our of X, operational to X.Xx for primarily call would decrease quarterly payment of strategic similar over activities. discuss conditions, on on

David Gandossi

and my by noting Dave, everyone. our that performance. pleased good Thanks, comments start QX morning, we're I'll with

proud shuts and that to longer safely identified due primary by parts. [Technical were the specialty major all well Difficulty] significant XX as achieved. both to over as objectives Celgar shut I'm were activities. our of Celgar maintenance than primarily heavily there's and for results require regular noted, were our damage QX stand completed recovery boiler say total maintenance hydrogen completed projects to down the replacement programs. Dav days a planned when of impacted days inside As XX number

As boiler I of the on to recovery the lower screens installation digester, than but undertook washing and new challenges upgraded with but and early the along chip in was digester are turn done nozzle Celgar new commissioning time us previous feed also extra and call, was challenging, work mentioned we budget. for of successful. indications that update to significant our for allowed upgrade was nozzles efficiently the startup capital our the due digestor usual the screen the get with work to system. on pulp The a improved

Our on for to XXXX, primarily us feet basis, soil XXX up board solid very so synergies was feet in performed and far friseau fragile Rosenthal million X The million performance of well a lumber $X.X about allowed X-shift QX. as producing achieve quarter, which between mill. mill million board a of

in compassion achieved all For million synergies of we XXXX. of purposes, $XXX

strong $X,XXX and pricing we pressure. market limited price to markets Turning our through averaged result, QX. remain price with particularly from tonne, average see was China, compared pulp tonnes per on expect in per sales Europe, which QX. we $XXX was tonne In per is China July a in unchanged a tonne, August, list month. upward slow transacted is in prices business tonne the basis. is available net July's to $X,XXX QX. $XXX steady and tight QX continue $X,XXX QX prices The and markets. spot per traditionally to $XXX between European as In which

summer August lower expect prices We to be given traditional the slightly slowdown.

steady We constrained continue the reflecting supply. with to tightness pulp is combined believe from producers, the paper in that NBSK market demand

before In low. influencing again, once, the situation, remained addition But calls. we are factors discussed in to inventories other very completeness see macro I have there this this for on also markets. producers

of hady combining the window. And recycled industries create fiber mills industry. currently China's a paper are throughout agricultural are in pulp and increased include to tension norse supply seeing of limitations initiatives, of the the the middle levels unscheduled environmental we the in are along the of with base of pluding, recent downtime that all import closure We major maintenance on market.

online SCA market. recent and incremental the so completed, years, not are that's NBSK last to expansion comes back additions, that capacity the in continuing has X has market. in We the is impacted capacity, The been mill monitor far negatively

although seasonal in continues as are due roughly are supply QX, began pulp S-P-F part a strong, While of European paper in to from softening the steady Bank with the the to Western in The the conditions late our to over markets were QX. prices as the from to pricing. European some of sawmills rather demand. the board as brings levels experienced $XX QX market. which from up sales downtime. steady experience In pulp be our was U.S. feet feet QX. Western per $XXX to increased conditions sales today, QX. influences strong similar majority per through up sales and Lumber have of The prices U.S. expected often harvesting logs. with random recent QX. feel industry embedder, the averaged And QX. up. producers inventory is continued March remain fiber slightly are in to fiber Canada, In $XXX relatively very length low Germany, exist Despite market sawlogs QX, come prices the for relative Overall, of improved, price QX, a lumber inventories catch our than remainder in demand the prices board of prices quarter In U.S. higher compared average XX% supply the market on thousand demand to in harvesting focused in In U.S., kept take seasonal realized low tight #X carried thousand in $XXX off board we price softening demand lumber has

lower we expect allow harvesting as slightly us decrease forward, wet QX prices continues and improve to access to in wood. cost to Looking

for plan on mentioned attractive have XXXX. we've the of we schedule previous calls, balance CapEx an As

mainly in work expect to on eliminate on in wide, yield mill of about grade XXXX. investments investing Construction will and in new so to previously We October in almost first the planer our improve our pulp of of be reduce the upgrades. well with to October far. as QX, included are investments $XX half improve on mentioned with sawmill about will bottlenecks. currently sorting for million XXXX. spend Phase the production in June will the million modifications CapEx invested are these X completed mill's the as of the and Friesau completion update $XX dollars XXXX. $XX digester lumber the In sawline start process commence the will machine rate, million lines and in costs our in also Company we Celgar These we outturn

program continuation efficient and of with our expand much railcar to to agreements continue equipment. railcar equipment Germany. we addition, shorter-term a fleet more our is rental This in In initiatives customized leases replace

that shut shut timing QX and as lumber And value for value And see able early was the for all confident balance the investment generated between for targeted our the in will expect Mercer about XXX that been to a additional shareholders. upcoming by ahead business generate short been realizing year I new delivered by the shareholders. Rosenthal the will would synergies solid of QX. followed we're a XXXX. in And new also railcars up I'm of expected wooden the result, Friesau It of has next our in we complete are I'm We a like early first shuts pulp about plan businesses. XX-day to XXX usual significant we've as ramp maintenance we remind to at our annual Stendal substantial to Friesau for X-day since Friesau be in and acquired of everyone XXXX sawmill. pleased year,

assets in our long-term deliver and creation value building was significant strategy Those efficiency, which world-class assets, productivity quarter and focused investments profitable to competencies unplanned by for lowering with our of investments platform of the and were our growth. for our sustainable a downtime. highlighted risk on consistent This increasing shareholders are results from core

team other core include a long-term That's opportunities. will is of of framed by extractives to our competencies, well Mercer's focus competencies with growth NBSK is conclusion as biochemicals. creation these in drive and products, growth energy to grades prepared continues pulp, as and derivatives with Our for on And disciplined that value being which It approach shareholders. remarks. core

to questions. to for up I'll call So over open so turn the back now operator, Thank the you. we can

Operator

Instructions]. [Operator

question Your TD Sean with comes first from Securities. Steuart

Sean Steuart

of to questions Couple start.

prices you it you some is potentially as of wondering I market? near-term in markets market in to, destruction context to prices. than and if pulp a I'm how pricing paper for And speak demand give pressure and And, China, in resale on were much David, downtime sounds that China. One there's paper the like of And specifically. guess, faster that function there prices can can been

David Ure

normal to in like Well China a summer us. it feels

lot paper New traders kind take downtime. A taking are holiday. of guys of a

had it's to summer month not good much honest. a get to So shut have unbleached take into almost be just really then a will shut we're the don't tonnes China. to time but completed at run pulp to sell going that craft pulp Celgar. And now, We transactions. XX,XXX try we to the any We the to a really push this making

if a probably -- be want full or we today, we it's we'd a going $XX selling down ago. month's we if production month were China -- to to $XX So in from where were sell be

I summer, lower will would the be likely that. think any We be, end it by the of than don't

Pulp need you that, prices they the low the that get back enough market the at business. inventory come As to all tight is back, the warehouses into get and improved. guys or fill again remain enough level to September, should to

last to probably I'm that's XX So raising months, over see important I have -- -- is a kind understand prices concerned the summer another factor of of then about. typically the more tissue Chinese feelings movements. that really year so for with that challenges it price the may soft in customers. a paper papers be not especially, their products, that Deb. quite prices I is so think, that the keeping producers producers It's really, successful And been think typically where pulp most I quick But the on guys very it's producers. side, successful tissue twice -- the these with moves been they've feel negotiate the just up are have European China,

Sean Steuart

And in further over long-term? to fact, from about duties speculations market that, pulp And any and David, to the pricing I imposing midterm, the could on in given on U.S. the how guess mid- imports paper. on over that China U.S., that thoughts

David Ure

the possible on to products are guess of origin, coming doesn't China have what or per have things the se. from should country time its products NBSK Europe. is from that interesting And It's most is pulp happen. of from I any doesn't a on for It the Canada Mercery one gets trade don't I of So -- in it we production it's right? imposed U.S. any Yes. guess reflect -- tariffs But know will we really sure. production.

taking China, not prices of That fluff, other the U.S. the soft So run pulp, or their foot. without a is a margins that going producers on which southern predominantly really Canadian on head. southern to insisting would sells on tariff If higher fluff huge is that a guess think. put mills place in wouldn't limit tariff on there to they're I wood. I in pulp ability hand, actually

So them, a positive. probably, challenging net for but us, for

Sean Steuart

ago the potential question Sandalwood on give mentioned your in interest refining press. what few Russia me, plantation associated potential Can growth line. that scale and to that's Yes, get I the for opportunity weeks to of out, ambitions a in was Last some in potential understand magnitude you biochemicals. with trying in local acquisition trying you context product there. growth was potential And

David Ure

at. Yes, that looking there's lot I we're well of particular -- a mean things that

from products But That that exotic than se. supply plantation XX% super for to in down XX been And But something it's Sandalwood market not come longer-term short legally that's will to northern was -- out them just pretty perspective. knows, situation. in the As is true. and become disclosable. one of new material really on there. categorize, invested value working Sandalwood everybody is the creation. from been be chasing -- dollar The growing exciting is is it's on eliminated. have is couple an harvested ago Australia, tree harvesting activities. of that is the so traditionally, have the stock a before traditionally marketive illegal We've careful plantation -- press active we're wood that to a both there what currently years them. a the And of an We've well less Sandalwood per it as Sandalwood I would is there

down down value capital shareholders. road, as And growing of is -- a for stage road. not value how of it's and a this -- growth. there's the say, comes significant a into our through outlay, to stock I plantation getting at big it's can into a And relates lot competencies, stock, a the not onstream value. it's about just taking our a stock we marketing. adding today It as it, growing value fairly value of think a growing coming core toes kind foot option is, is just really, when lot And we previous years processing but a the the it's having Sandalwood think that grow platform you but our business and will that for to that so a it's it's that, of It's difficult downstream

are or we're trying one. particular something but what the has a deal on to been that's something So It's yet, press done linked we that do it's to on. that working not

Sean Steuart

us Can perspective for opportunity? guys, guess that terms in I of potentially? some committed scale potential you of give dollars on you

David Ure

dollar Yes, of it investment too to very those to -- a it's Sean, But And material value kind throwing to exciting I let's creation. don't not that's numbers quite something out. But early it's material invested as is I -- want it's perspective. us. an from said, from be

Operator

comes Capital Patel Your from next question Hamir Markets. CIBC with

Hamir Patel

maintenance obviously, front, on is QX the David, heavy. very

Given XXXX the timing should of the is shut, like have maintenance still it significantly less looking XXXX? then

David Gandossi

that's Yes, yes, right, Hamir.

Standels XX-month as So you rotation know. on

shuts to X a one. a eliminate There's So XXXX. large small days not number be that will but for

Hamir Patel

And for the other two mills?

David Gandossi

stage. will know That as we far shuts be as this XX-day at normal

Hamir Patel

about change But, greenfield David, lumber that Sure how is Stendal? the building that investment at think you just presale, potentially, a mill enough. given

David Gandossi

is us X feasibility an And stendal there And platform we in studies -- No. get X think mills, synergies these a But capacity that build you on preliminary along to and it. our We're is wait sawmill. to possibly option. till years also build don't getting to tremendous see opportunities Stendal building have existing far you X general Northern I engineering. Europe, fairly X. to there is

So both performance hopeful that I'm in the we we're And both. do focused of on time.

Hamir Patel

any freesales. how in Dav, sinsuated Friesau And, thoughts recommended on Europe multiples

David Gandossi

of There's depends a situation. to pit Well to. it on lot the not transactions

the in situations multiples But be think multiples we're don't multiples transactions Mercer seen. value. in the certainly would looking we've create seen similar other you've can we buying think U.S. wouldn't Europe high I to of on where for the be end I recently. of

too this far infront And so as of be get careful I well. don't

Hamir Patel

enough. Fair

and the David. run for the in you through Could final shipments Just production quarter? question by mill

David Gandossi

sure. , Yeah

Rosendahl volumes, Celgar XX,XXX QX, Stendal of was and XXX,XXX tonnes, mill tonnes, and of in XXX,XXX tonnes. XXX,XXX tonnes. production, XX,XXX tonnes by for matching tonnes, production So Celgar tonnes, XX,XXX sales, in Stendal thousands terms Rosenthal And so

Operator

McGovern Samuel from Suisse. comes with Crédit question next Your

Samuel McGovern

downtime after million of proforma million it together $XX $XXX Anything before million the to impact during of as downtime. figure you quarter. as have Is Just just you about guys that of impact $XX the think to the the the sort impact as the downtime? of the impact adding simple backup

David Ure

Yes, way that's right. it. about think That's to right

Samuel McGovern

your How impact out k of the you would what as maintenance split need normal segments. Then the two across segments? EBITDAs be about sort the downtime, I downtime of thin that breakdown. would

David Ure

by mills or? mean You

Samuel McGovern

right. Yes, that's

David Ure

EBITDA was a Stendal on than actually the Celgar. Yes, will larger little impact

be about that for Celgar. for would Stendal, So XX XX

Samuel McGovern

how about you How about, know just the thinking spending you de the on it. guys Obviously, in cash dividend. guys What about that Europe. allocate mills allocation, the flow have Got pretty prioritizing? talked generating. announced I think have plan guys thinking will be are you substantially. potentially you levered you to in capital lumber already you things guys other you

David Gandossi

buy I that's it's it's about is the develop where it's got in last the -- the this the the capacity There One there I a focused being to produced, waste a is so market. just location -- infrastructure. And It's Europe. that. But of -- mean chips we've Well, things in heat are -- the synergies on on. just sawmills, the And started that minutes I little is used whole are ago pulp a with clarify the that, sawmill number of are the bit that bills tremendous. if cilms. theme our we to spoke few the platform call. and we

in synergies, So and fiber But there. there there strong operational is on. also synergies there fiber market really strategy is so is

some market have help an pulp or want in domestic to railcars So business of temper where us. or some you region. prices much move our region, to our as with might if sawlogs, market. strategy strong as in to do in normalize imports extent, capacity woods the to we're to you somebody with think into we wood, when -- -- marginal the we imagine cost wood, and so to compete thing the a that an the within than in average Rather got pulp the of paying the the domestic mills. you've low our have price importing our If cost beside And wood, sawmilling cost such buy market, you wood of is somebody our Then a the industrial with relationship able they who about you competing in know we high mills, curve of of all which bring we're flooding for -- in cost for and got facilities buy you bringing that, wood. we got just you've always it wood all same harvesters

market, our the So with we sawmill Poland we Eastern wood coming Eastern with. of instead the the area wood put it, in that high-cost and importing can or is pressure somebody compete wood basket today high-cost we check. Poland, our the to on if of want And from competing buying just we're in

when enough control little but So market. you that's platform, got that's start what it harsh, have happens that sounds a to you a capacity the

Europe. building Friesau's with in Northern creates a Stendal So Stendal, start, others. also #X. that's big option that is what we're And options option, And fresh

there. So that's kind of strategy the

is better And wing tonnes of we've the projects pulp the And we are years. is mentioned, running. us. mills is, there last XXX,XXX are today. we're several capacity, to, X be incremental And combination with And time, long-term capital about capacity planning Another pulp what for XXX,XXX been creap opportunities got we've I into it's last so on our for mills mills than payback all the production the the of as high-return gelling are believe, those a for on ring that call, would M&A. next from that X-years like focusing tonnes those look opportunities, the coming plans

in. we're that really on and including biochemicals of being a that's looking mentioned, disciplines, so it's extractives. like I As active at situations And so pulp so we pay a all just situations, potential, a very don't acquisitions, price we're sawmills taken and comfortable that question think going create conditions that's about the a over when ourselves Like take bet longer it operating to it. an and with acquisitions, that value prepare and the cycle. and on cyclicality we're make view we strong current we

Operator

Daniel Sidoti from Company. comes with Your next Jacome question &

Daniel Jacome

the just lumber wondering, out being in said, shipped looks production XX%, your [indiscernible], into had was it you operations. there. a U.S. capacity question of quick the like May be I'm total on I

I what think in drove kind random if let versus XQ XX%, I at U.S. -- XQ color so look prices some kind that were XQ. up was -- on lumber change quarter-to-quarter just length me higher maybe alto to the of of

from with at I kind it had. just Was in higher of think or we going like And something like that $XXX immediately base transportation returns? forward? $XXX how XQ the line average a up use. kind all of I That's that. to quarter pricing think preceding metric It about mid-XXs, should

David Gandossi

good question. so Yes,

Our approaches to allocate the roughly XX% less of central at Europe are reach our out very to volatile us. of And to I good And middle if the is much strong customers a close It's U.S. over market, it the Europe, term, -- we're market, U.S.. right pricing. in guess market in the a are. we it's look longer a been where

focused market is very the grading risk of fourth like European the notes into which kind market quarter. lumber in traditional is time have the So for issues produces they us. is U.S. stock that in the planers, fourth the consideration that, grading European The is can't marginally faced the European feels out. what of very which the the is, is, common from in the of the on that, European it of good is generally procedure, All also center And part knots. starting the U.S. cut very X/X's the really for guys it year. for situation. lumber that been the but better, split U.S. quarter These in were creature really, there producers the last And of tree see first growing are you spike X/Xs -- that

got European that. So in up as I all say caught producers

just strong split building say, brand take pulled the So to Mercer, on the really going not stock, and in focused we're all even we're U.S., because out we a risk.

the the And point, when when so getting issues at grading did have with have and very preliminary the of were we some issue was are we control, the the the Pull started we identified. any this we on first our then markets. being don't our There into focused improved European issues. splits rest splits, U.S. back production really eliminated strong going But quality proactive.

Some require of provide that different we're improved producing more that eliminate the don't log to issue want to split capital ability in for outs work from and volume the club optical which of let XxX patterns, we and market. and doing, the cut includes so center the will U.S, the should which scanning the more much saw

Daniel Jacome

Okay, that's helps.

XXX average back with price? lumber low U.S. the XXXs in into was kind lumber. starting pricing, board with And So I'm the European thousand was assuming XXX. of your the ballpark I realized per only, Am

David Ure

Yes, I so. think

Operator

Your Shapiro with Capital next Management. Andrew question from comes Lawndale

Andrew Shapiro

some investments. questions here few on of CapEx and these the strategic A more

us I think What's you updated one of of the in product for status the Stendal. status considered electrical near the turbine's. the the the sawmill to of be overhauls

in Stendal every would And was overhauls? turbine of or once think it when that many and there I be more that reduced the XX-year Celgar. these revenues were encountered during process. And how

David Gandossi

Yes.

And X at was Stendal, the left talking in had well. were maintenance lost as in million going quarter early August. up, And upgrade $X coming TG is Celgar's earlier, we its is the think, energy stallers in for turbine. that's revenue from So that that we about to that down it's back around revision. the about on turbine QX And that million. on go a revision $XX for somewhere

not So of turbine $X.X but be hit for would that this It's quarter. it guess, would big of -- I us take a month, a million third sort down.

Andrew Shapiro

are turbines at how Stendal. So

I was Stendal that was even before open, I've been years think I here open. many it for guess

David Gandossi

the turbine 'XX XXXX, timeframe. Stendal the We Yes. in second in put

probably, it guess probably, got Rosendahl X will, from X it. years turbine through I And a that that now. So or going was will be

or XXXX. revision long-term it's XXXX So in

Andrew Shapiro

a discussed, ago the and long been time what as to Australia resolute, sandalwood in was for joint around update guess, as I a if coming -- with rumored since, know long I've cellulose is a nano's of you that? made wanted investment opportunity. on investment And long-term course, us I venture can the of is

David Gandossi

that's again That's performance Yes, by philmant send. value initiative. creation a long-term

shareholders $X $X made, commitment million commitment that was by that million along with for Mercer So aren't Resolute. familiar, who a a

and It the develop facilities, need the customers I'd to from of team, quite going in where business it's joint interesting its attractive and perspective, -- So time, the time it's for that it's value expecting initiative for access well. have develop XX-XX will we're is applications -- creation as -- the number significant things we pattern cellulose you has of own commercial There to a -- the very all so protected And applications. our appears initiatives a very fullness could its these is us. There be are say, venture. It clear. to filaments. be purpose to very value production very takes

So always work allows with you a to This customer, performance how him, with we're that to do whatever the can lower him supply -- products chemical a product like a there customers. And need long sure make provided is -- a be imagine step that on potential a will only this the that achieve that's we making. and the he's at with to superior material. that cost that guy can is

business. use and have see small a customers So the XXXX, we is the kind sales slow ramp steady we of ramp equipment -- up up sales fiber. that amounts of like as these will in And of

I and could a additives additives as example, down be it for applications time. have take huge the step the potentially volumes very of fracking seem interesting, we But at things to muds Some road. to concrete, like say, to a

Andrew Shapiro

future un XX,XXX of you black if -- -- thousand -- Okay, the bleach pulp you the last tonnes of to or opportunities any in did XX,XXX describe for batch to here. produce Can bleached impact ones them quantifiable favorable it's what plans again? China. then Are two tonnes you

David Gandossi

sure. Yes,

factors So going there was of a number there. on

permit demand for pretty China, recycle challenges Kraft. So what unbleached in we saw some the heavy

asking us if some had a we Chinese could run. We fact, customers do In

-- some retiling going the bleach at shut Celgar, We the in into doing of towers, have at same the we're DO a time the work one tower.

If a you retiling short can have it's the you more -- to if shut out expensive spread little a than bit. in window, time

you're because better $XX us of do chemicals. when if got cost. next running putting through you're because at couple then slightly And to of that bleaching we you bleach a plant, lower So or $XX you're the not give and -- about plant a took down we pulp not yield. you for capital dulcification, weeks, bleach also thought OX the work or a the ability that And will save

So in going somewhere net between tonne. a bleach and And $XXX. was sold that that add $XXX all, unbleached we for $XX pulp all our

all it our really successful was again. to put Not It want for in together, and partnership you with it market on we'll us. China. do existing sure strong a customers really run we a conditions, when when So do maintain it depends

it may that sense be a them. for We us on reliable doing other don't we might and on time. to be to on So be too this conditions supplier make occasion, want want things at market depending for But often. going the

Andrew Shapiro

et in what's investment then deal, coming the plans months? upcoming lastly, presentations non And cetera your for

David Gandossi

Yes, conference is at be we got going going -- we'll I'm also the a in quite be TD to Jefferies' coming a August. David? We've Sidoti. bit X there There on. at a up. got

David Ure

in East Canada of Coast we're also couple then, U.S. And October and in in and September well. as planning a roadshows non-deal of

David Gandossi

right. That's

New in and So we'll in Canada and the RJ with CIBC be going out Boston. York

Operator

next question Walthausen comes Hinman from Co. with & Your DeForest

DeForest Hinman

Big base interesting question because someone of parts. Just But else. always quarter. the to second maybe is of company the have kind is, kind being hard you picture moving analyze situation asking lot in similar of a a

guys and are to and break and out expense paper put Celgar pencil the related You the Stendal.

of to going [Indiscernible] those on to numbers number. back that all add segment. get You just had

it's side, like million. EBITDA the On $XXX

$X you the in So million XX like up divide by quarter, day. a days it's a

three they if to of it's of $X business environment, make of think XXX. we day, about good that a So kind the is if a way The right now? make running, have pencil paper of steady-state million mills the over

David Ure

that Yes. to reason that really like clear And few use out the it IFRS. mention we first, one the that guys U.S. -- just carefully so the said I be just break said I GAAP Exactly. is we're under Canadians pulp report the you, of

their the to maintenance so them line. them, dollars shut they what then the And next shut they do capitalize is depreciation, amortized with and amortization to

in it see never EBITDA. you So

DeForest Hinman

versus end prices. a paper, talk least the second $X million little it higher in to expectations day in And following for little where quarter? we that have be quarter. it July, it And more. so could sounds was fiber a about so up $XXX May now, pricing, be the a right like at bit we'll

David Ure

going market way looks boomer. the think Yes. be We I But the is a to typically today, give don't to back guidance. half me the

DeForest Hinman

happened got little issue What we the looked detail the and a Can around? more what in was inside you go when bit on with boiler? inside

David Ure

during steam are Yes, there boiler, that recovery is When the that always the have salt common siplers, boiler. pretty up can stuff. got And period, the nozzles of any a are in have -- get these called blow they they all devices they of build salt these -- sort of they off inside of through. things rotate if come of thing blow, or malfunction -- the in The technical our there is, the misaligned cake if various kind areas can they cake boiler. piping the

cake cake it we floor. And high. boiler up So that build the build big of fell had a one the salt corner as down, dented in salt up

they're shut, boilers in work not scheme of precisely. things, XX a as boilers very the out decided event is tests it's exact And the fitness expect so down, of to lifting great great to impact of in your heart replace reverse shop we important done the of the Edmonton. all expediting from case, it's thing that the guys condition and you inspect engineering, really of at of to -- this all which and that And your times. when after the the fair sort pipes expensive all installation, to question. to you the took go And all has boilers maintenance through that and the mill. them hugely it's the recovery looked floor mall a cool do that you are wipe. additional be ordering mill It's requires at damage them clean finicky and of in And have And pipes, that what but just job we to for our shape And the procedure. In did days.

DeForest Hinman

that to just do was more the context, this or on So is shot? that more nice had to do versus

David Ure

to operator Well those the But way always. it doesn't a do. did it se, -- the follow of it was long-term. best of the done I'm a would've tend practices sure the performance things must per perspective, one change from over protects it's We put not assets mills it. but we Mercer's it every

DeForest Hinman

it the slowly. production like And running level It on then that up to it's versus July, briefly understood. there of Celgar, can understand mentioned made investments Okay, help or sound in But how and were how the you prior us we you either some investments? on screen. weekly performing the is digester rented

David Gandossi

So is the in the objective of one digester the investment is in the to, feed.

running So digester. that we were

them to We putting chips as in. are fast is put allows equipment as the us

bottleneck So of faster. it and digester. the of physically a squeeze top was Couldn't anymore the

a system, So to then a end the fiber all we including us -- new which the digester we system top, screw and want. chip the can changed screw with the -- the which allows infeed we put of -- into feed

that bottleneck next a had is that the washes it So on Then bottleneck eliminated. pulp. how digester the well the limitation

-- screens, the where base about of done a the ago and the you the of of done XX Rosenthal we number really layer bottom washing we've of put so years procedure creates something digester a into at digester. And at the we improves this exact which -- whole just put same nozzles X/X have

which to cook coming reduces OX out you're which what the better you with organics your cost, going factor to gives pulped the the we end that and and bleaching to pulp improving the large by performance pulp. the more bleaching the down it So better, of of the the It's that a also you leg. enables aren't be the at taking washing, you're digester, filtrate, enhances pulp, dilution removing out your a call, road. cleans And of

just a the revision new growth I all really it's So basically Like for fates It's also washing. all -- have been way heart, -- different going -- it's with the when digester like learn run a on hits operators new. is to all running. and it's DCS procedures challenge that just you're to things new the a it's commissioning, of systems have for a it

had When that -- some start tonnes half that extent. X,XXX We've is X,XXX of typically just they have learn we've great. and a for day, a of you to drew ramping So it run to day run and which ran a by the rate slow to it. a keep great, and about digester up period how

we bottleneck. So the is digester know the

a come is and matter an coming already. And dilution of will out thing. We that equipment from of renders objective and happening of better. just it to before so factors learning all standpoint It also read achieved seem partially whom was that negative it's

it lot The so thinking and for seen planning the but those have the EBITDA into a since second of done that drying quite things. reason short during and was put went the went speeds the short machines running careful in we was we of effort we

around run have we've with at runs in P.m. machines PMX meters for no which summer now issues. is that there. XXX We've We MX, got got used the minute. range. trial a time to period a XXX, that up of rent And XX a XXX

running which than at XXX means perspective, able So is digester put faster XXX machines high-density quickly, actually a in storage are run the moment. down tank you're at it if the to very machines, -- and on two to sucking the

we capacity. spin that's the call So

were. big during were that So completed that the we successfully got really two shut improvements

DeForest Hinman

technical that's like [indiscernible] That in layman very you seems were explanation think terms, and

David Gandossi

us a take objectives. mill Celgar a puts and the feel on I that in up That XXX also for for tonnes next we And XXX the capital will phase works. sets target was that year the to describing as that that's of

DeForest Hinman

opportunities look hold these to that then as one inorganic We returns, allocation of mention And just payback. different last organic between three-year you previous going to the still talking terms ourselves investments? rental question and but in at we return capital about didn't metrics

David Ure

So on yes. projects, the return internal high

and pulp capital discretionary and for products our So we got mill mention. summer projects of lost

it become holistic get would much asset. to how we it when What and our the look and in do What to the with for we get would But think bit pay club MD&A. three-year payback we asset a M&A asset. year when a from about about For where there think at ago to it view search we have making the little decisions. to target you perspective long-term let M&A realistic know cost growth an

DeForest Hinman

first May for looks to are for was step a be Friesau spoiled yes, fast. be. it going mean sure. like getting Shareholders it Led I make great pretty us,

Operator

[Operator Instructions].

from comes question from next Pratt Joe Our Stifel.

Joseph Pratt

interests can uses the you through $XX cash. thinking million? around it's I'm Dave, me Hi walk of

David Ure

Yes, that's Joe. right,

Joseph Pratt

Okay, taxes? and then cash

David Ure

think I So for annual you numbers are, Joe. are looking there

million, million, would is $XX interest million. $XX $XX cash typically around taxes So

Joseph Pratt

$XX About million?

David Ure

Yes.

Joseph Pratt

Can CapEx the mills? and pulp the by down you break number

David Gandossi

annual MNP that program an And on So will pretty a close basis of you'll years, returning midst -- we're million. small, probably the care total to quite immaterial. next recall $XX over but high Friesau, CapEx the extensive X the in is so OpEx

Joseph Pratt

that means $XX million Friesau? in does for So XXXX

David Ure

$XX million. to Closer

David Gandossi

than higher little a probably Joe. that, Yes,

Joseph Pratt

call $XX million. it let's Okay,

the about pulp number there? mills. CapEx how the What's So

David Ure

round numbers. million, $XX

Joseph Pratt

$XX million.

Okay.

cash going those any of out use are door. the So

million for $XX cash interest, $XX pulp for Friesau? mills, million the So interest, million $XX $XX million for for and free

David Ure

about $XX dividend, We have million that our totals

Operator

further remarks. There the questions. closing presenters are I no any to for turn back call

David Ure

everyone well the join Okay, thanks for to time today. us taking

As if has usual, anybody the -- don't after hesitate. questions,

David Gandossi

day. great myself, always happy your to or a Dave we'll Either calls. take Have

Operator

today's concludes call. conference This

now disconnect. may You

Mercer International (MERC) 27 Jul 182018 Q2 Earnings call transcript