MERC - Earnings call transcript Q3 2018 | Mercer International Inc.

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Operator

Good morning, and welcome to Mercer International’s Third 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 Q4. 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

up mill, productivity of was performance by NBSK during punctuated as at the of the lower and on at ramp stages well recent Our annual strong QX timing turbines maintenance pulp Celgar our prices, stable of upgrades the asset maintenance temporarily to our shipments of as two Friesau, our final Rosenthal Asia.

by million When in $XX.X which results pulp $XX.X compared annual our significantly QX improved production. in Our to impacted compared positively offset million partially QX, spending annual QX QX. impacted lower shuts by to maintenance realizations, were wrapped lower EBITDA our lost mills EBITDA costs to million direct to million $XX slightly consolidated QX, were and and compared was In to related as full QX. $XX.X productivity up production

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

downtime As and optimize to grading significant Friesau we the took automatic install at new sawline system. and

a was $XX disclosures XX-Q. QX In up European relative our list additional in As usual, could price segment find you the average to pulp ton QX.

$XX in prices impacted quarter-over-quarter. to pulp Compared the China positively down ton, a approximately by QX, average was While list roughly price $XX EBITDA higher million.

quarter to at late tons we XXX,XXX productivity optimize latest of tons, quarter the investments departure the and of from volume capital our of totaled QX was which pulp the Celgar. vessel days about down early sales in at the as lower end a XX,XXX a due Our

gigawatt to QX. match late we largely we to A schedules. required break built product situation vessel XXX itself considerable both of XX total higher at because due pulp relative the a quarter believe on departure, about turbine were Consolidated and sales which majority maintenance inventory in was to energy Celgar. in addition The the to to scheduled stage shipments we sales Stendal hours, completion up the the will was In pulp reverse of hours electricity gigawatt QX.

both back turbine quarter You million. QX. the online came down We foregone will of the of and recall, be of result value turbines most maintenance in $X.X a five QX early were revenues estimate the energy about to for in as

energy normal QX. levels expect production in We

side about in volume sold our product of this feet with equivalent about quarter of being we wood business, the board XX% of the U.S. of sold the in On XX lumber million the market.

down was sawline for production automatic in We for quarter XX per system total $X.XX $XX.X or the $X.XX new sales or net installation. reported the for grading due our million QX share QX. to levels net reduced share income board million of compared lumber to Our of feet income and million per $XX.X

operations. on the clear projects. season in a projects $XX cash much capital quarter ago, Despite will that a quarter pulp inventory we raw advance about And in million driven predictable moment $XX of a a I has the QX. winter, We generation was we by QX significant approximately had Turning that harvesting of will in inventories speak to capital less David, during noted net spend capital in higher to decrease of as weather we in for level moment. approximately build The EBITDA, $XX compared a cash QX flow. increase consumed material our build of million in current the in to working net in cash cash million. as

debt from our Board financial while net the has BaX, and of maintaining X.X of a ends strategic On record over why And quarter one overview outflows payment which have our Our our to has approved which its to activities. $X.X basis, quarterly are the credit press trailing also the of million XXXX. the market payments. our December I’ll our XXth, And metrics will rating to dividend times relative made healthy reasons $X.XXX Gandossi remained release And stable now of unchanged you’ll about a our yesterday, David discuss call dividend to be on operational December seen on outlook. QX. in performance is XXth, Moody’s XX in EBITDA, included of quarterly company’s upgraded cash turn month conditions, my shareholders Wednesday the That results.

David Gandossi

Thanks, Dave and with good performance. QX our morning pleased everyone. Overall I’m generally

in quarter significant way capital a was quarter following upgrades. This a transition

upgrade improvement quarter lower positioned the we've and production one our digester has results. shuts. this already result Rosenthal a pulp Celgar’s strong In we’re was results at now negatively and fiber optimization that China tons and to QX due to in will we’re usage. EBITDA reduced up of and the And the seen pulp affected in during noticeable seeing mills this incremental well yield. very quarterly But Rosenthal this seeing the completed periods. in our installed increase EBITDA fiber quarter festival new equipment planned the at track than QX chemical result future of quarterly benefits Celgar work the for and to still departure screener ramp also drive and the us in equipment on at The Our and they’re was delay both generating break their we the their of is a production QX. lower QX maintenance in annual on upgrades of best financial

million new the did far that so production, due primarily grading of in $X board was sawmill productivity XX upgrade Friesau our in feet high of and In XXX expected, automated QX. Friesau sawline which relative produced great sawmill of return almost to to the million As mill. Rosenthal the million and $XX million and are down have between from synergies we lumber, QX, those achieve XXXX, is system. in synergies scanner Both in Despite about production and Friesau down feet increased lower QX, outturn. board projects quarter

markets. The pulp to through QX. compared quarter. prices after market ton QX our we QX per the per $X,XXX balanced on expected industry's a is range average settling $XXX list $X,XXX $XXX at China we're per we're In which expect season, pricing seeing on post seeing price pickup. prices QX. in My which In October QX. Europe, then remains softening was through slower to $X,XXX bounce in ton, QX maintenance average moment. to significant price last to view the pricing $XXX European China, based markets ton steady in remain ton from QX. and in be also Turning is to tightness summer down slightly steady a at created the around than list the slipped per Pricing in $XXX what appears ton, back $XXX in saw is, September.

markets pressure continue We in no NBSK for from to keep believe pulp, that hardwood supply. constrained will plan steady on producers which meaningful expansion is or tightness These with reflecting combined both. either global pulp the paper include, pricing NBSK the demand there is

European don't our wood. leaving pulp inventories built in better it In that but tension up summer Obviously, really in my or feet U.S. The all supply U.S. average QX. in U.S., sales consumer board slightly higher China, combining to compared U.S. to slowdown more of be recent XXXX QX, just per our downtime is number slightly of have demand sentiment, in mind fiber declined we only highs. relative $XXX down experience I noticeable throughout QX, with remainder to fairly recent on related be damaged sales the XX% QX, along In input European demand see thousand in include prices from per quickly a year, in the other pricing. Despite that, a continue QX. thousand improved, are increased fundamental significantly – link average create in to the shortages. and We’re $XXX than China-U.S. tonnes supply market. lumber conversions been of the grade the experienced seen In majority In or There Western market. offsetting factors, moment, logs. were sawlogs over In a due of more trade adds in been primarily inventory than carried over market This positive and dropped conditions pulp to beetle the agricultural-based Overall, dissolving the anticipation and two the Lengths benchmark will general and the market. XX% realized limitations In sentiment similar unscheduled buyer in of is from focused western which SPF Random storm continued the highly large pricing harvesting probably have QX, to down and although reduced pulp these to change consumer a paper from to the to million board roughly paper stable, to generally quite initiatives seeing slightly Canada, declined pulp are of polluting to the price steady levels relations, with fiber softwood lumber the our $XXX deteriorating environmental mills, was harvesting China’s to in QX, in the the well recently the XXXX, And at Germany, of prices of fiber on may paper correct QX volumes something gets strong closure due for over $XXX with primarily softening Lumber low X markets It's the that sales which in of quarter, sawmills we increased market industry. quickly. we fiber for levels QX. exist either supply. to inventories will list up. has kept with low softwood feet rather fluff convert grades. in and grade paper up recycled the demand in prices QX.

slightly lower see us to to which will in improve, expect cost access wood. allow harvesting decreased we forward, Looking as continues QX prices to

calls, that Celgar's kilns from our feet. we've outturn. which in improvement the production last QX, In $XX rate end as regarding we annualized day. in the also CapEx per high grade XXXX impact doing The $XXX,XXX and customized efficient yield will reduced and demonstrated the next proven mid a our new fiber invest our successful. program. leases fees. investment per lumber and of feet already to continuing in follow be as of daily lines July, As are at XXX initiative sorting X,XXX planer, will million upgraded mentioned mentioned, the with and with expanding expected so Rosenthal and Over shorter middle investment achieve be continuation board an the in in program yield of the are of fleet thousand to has more optimistic we Friesau’s pulp replace railcar we rates completed Germany. of we equipment is will increase the I line year, higher term Since that wastewater our The This quarter, is long is yield tonnes tonnes to our the XXX million sawmill previous as digester Friesau mentioned on it railcar of lumber we as will operating mills million in board year we of term our Also, per equipment. achieved to

by are railcars have expected to XXX at expect and scheduled XXX shut mini XXXX. next to the In early new XXXX QX, of see we a a first three-day Santanol. in We all delivered the be early

to you and the profitable will advance Both growth. and of sandalwood acquisition as core Mercer’s assets. world-class These the Santanol leverage value sustainable the our Inc. strategy International deliver our recently long-term creation business. announced know, Now, competencies complement we've businesses Daishowa-Marubeni

which these smooth of Mercer's existing allow we energy and opportunities and on our to extractives on of other closer by As want will green value It derivatives to is identified synergies. well short products to that core our growth growth reemphasize us long I creation core wood framed are disciplined do we can a on integration drive ensuring biochemicals. My NBSK work team term pulp include competencies as And maximize that will term and with competencies, continues the cause move Daishowa-Marubeni and assets to grades shareholders. the disruptions. our closing as to for capital focus is focus to process acquisition, approach

drive We process longer also equipment opportunities shareholder creation. attractive view to value as and optimization our growth term

call turn I'll over So stop you. there and to questions. the the Thank

Operator

Thank [Operator you. Instructions].

Sean Our question TD first from comes Steuart, Securities.

is open. line Your

Sean Steuart

vessel give to inventory Thanks. tonnes Good questions. much much up Can of unwind in to morning. delayed QX? the on this would XX,XXX you you that the quarter, how quarter. how respect this you the expect China built was? Few us of With pulp context build And

David Gandossi

big in Yes, Sean. Hi, picture so is, inventory had low the QX. you

builds, end the XX,XXX XX,XXX at of our at end the picked times You of XX,XXX tonnes up end XX,XXX the tonnes the tonnes the of end of tonnes at QX, – QX, at XX,XXX QX.

to inventory end going us the that QX. full, think, have And not it’s is about we unwind, and what the I it's the was do So going for to look is XX,XXX schedule been tonnes have would vessel of in per like target inventory meet that be October, to we think, were on not we to you for was the building what – vessels the give plan vessel at the one delayed really it can XX,XXX we'd to had credit is And which tonnes late. quarter. – the two I don't when sold at going full

guide So somewhere going of that's XX,XXX tonnes XX,XXX I between can be to tonnes inventory. and

have have we'd sold and EBITDA. it you there it, you'll example, you mean – that But tonnes So in for obviously, if could inventory the that if sold I million that's the the does was XX,XXX quarter, unwinding. buildup market in $XX for mess but if the for quarter some to contribute

Sean Steuart

Okay.

explained relief QX. basis in Europe you quantify BC on sequential On guys QX? pretty get a expect any the to costs, well, from trends the Can might fiber you and you

David Gandossi

Europe a to beetle There good of in problems is the dry the Well, be few a direction. over quite it's not been because but has weather. summer going huge, moving

next into for storm – kind us produces supply bring there than have is to And harvesting that's little so which translates if glut as damage, down. it’s price rapid the wood, that also what of which you helps stressed of the if it layer. And

a more like So think of be we is these something this term longer actually that of is going big. impact some to pretty are

six is we're coming months, wood next the at a see onto downward least going feeling for general my more So to market and maybe direction. longer,

our and work got more through wood. continue available we've existing to buy So inventory this to

but might moving, to QX, a reduction could it's going in in more So X% moves, X% moving. significant than expect, it's as quite as you I see little be much maybe a the generally think that coming some quarters. We're future

the same market, thing. Canadian the not So it's

got through our in on. to any think so inflationary help chipping we've the programs got that wood there round I programs and mitigate impacts activity sawmiller region. We've

And bad dollars So a hold we of good we're calling in that's in things a into is cost about of a something pulp, not to going maintains pulp reminder, ton the quarter U.S. a fourth and flat us. and wood hope in level can the $XXX $XXX profitability as per line that's ton which for there. a it

Sean Steuart

it. Got

guys. get queue. Thanks I'll in Okay, back the

Operator

Thank you.

Our next question Hamir Patel, comes Capital Markets. from CIBC

Your line is open.

Hamir Patel

capacity bit inventories online. could see China David, you of there's pulp I fair morning. understand paper a in you a – Good maybe to slated where and from what on come comment

do that playing how see out? you So

David Gandossi

moving paper lot kind and of news. reaction temporarily recent And think lot things it's moment paper at your you a see – to when it's of Week Well, hold seem little just see and really to China. of a expect just a in to Golden production of the political come hard a normally I more in out to a up the to ramp you of Yes.

Russian Businesses that's sustainable that transacting So LM them doesn't $XX was $XX level, illustrated it us, $XXX, it but discount. softwood, which at think, the so feel $XXX down, came to probably to takes I there situation like a the the out is. about around

great the periods, as kind but moving, know, moving. switch starts relatively with all they high China paper moment, compared high sluggish they'll think usual just and to once to normal at it I and keep inventories we keep that's to can do whatever and producers inventories So grades to paper are and for not slow of fairly run going to lengths go

at and concerned considering U.S. the is and So tight this I'm how not conversions. stage overly coming and the Europe

our of China least see itself this fairly thing think work kind that At that's a short I is in expectation. out quickly. term will

Hamir Patel

And economic a around SPF, Friesau That's just crisis thanks. to a George $XXX to Prince Is Okay, helpful. it for the to free U.S.? at the side Western least still from ship at lumber with now. turn

David Gandossi

for Yeah. up the and for very is. European we've something Well, combined the we've like good a synergy. market U.S. for like big can quarters you it the it's justify quarter in which but be a floor of almost expecting in us. close depends having on But quarter I'm these the not got to business X-ish where like our Friesau, holding said that, synergy epitaph got also is three the including sawmill – market, honest, on getting and the synergies, nicely But fourth still

So top of synergy on that. is

attractive keep and for future it's doing role, I important going – investors that with be So the is the customers. been for many market been other here Canadian I is not market having lose sawmill, very got building maintain to market global our nice share. a massive a it U.S. We're is this steady to we We've U.S. producers. customer that. It's expansion Mercer to a something not But so a I think the just, and going in lumber significant base. moving options. on money to very But plans The would understand U.S. just we've that market into a our product European into a based out. the reason that’s that wipe U.S. have will correction impact mean, we our for it's for it's

going. So want that we to keep

Hamir Patel

that JV an be going with Is just in expect report respect will results, Dave, to able to I’m there. that those about how mills? Maybe Thanks, to and to the mill Dave. That's you equity transaction, reflect for the investment when you then when report thinking it EBITDA helpful. do one closes, just DMI that

David Ure

for Hamir. but right, structure an the you're see, you're accounted rollup such of equity be that investment, the XX% is EBITDA. No, it Yes. the of going to as It'll of see

rollup You'll into of two for to the see done bill for is that that at actually the of transfer pulp that from reason it's CPP earnings way cost. The financials. the transfer And our the shareholders, structured. the is

to shareholder imagine if to two transfer pulp it's a of of getting could independently. then comes that that cost, at XX% and you goes transferred, done from out one shareholder. by CPP, it other the and So But sold XX% is all goes pulp shareholders the the

Mercer So future at full in the DMI picking level. the DMI the up and will EBITDA be up at

So in to a have see clarity nutshell, it, going EBITDA. full when you of you're

of the will up XX% EBITDA that see show You'll from our mill financials. in

XX% We'll production, we and see XX% volumes sales You'll volumes. that include sure make of the revenues. the of the

think transparent. find pretty I you'll So it's

Hamir Patel

for Dave. Thanks I'll Great. That's over. all that it had. I turn

Operator

Thank you.

question next from comes Suisse. Kuske, Our Credit Andrew

Your line open. is

Andrew Kuske

on continuing about the just lot lot at I'm a on up But than a how it? around structure morning. balance DMI. when Good you DMI, of of have it as think last you're the transaction you about the spent in Obviously, cash, Mercer look whole you think you've was past. Obviously, How do seeing few effectively the you. options that you financing years it. around Thank cleaning sheet structure really do simpler the flexibility. much

David Gandossi

that I'll being thought Credit a Suisse. David led But behind a we facility Well, financing, Andrew. might Yes. by is comment start, me, committed the have here

that market be to we'll facility to a it including the it’s capital. will that's senior with senior likely So million the be U.S. out to million be That's with – that another with notes. the make facility. a acquisition I what and It'll take be And $XXX working bridge facility bridge that think the can $XXX U.S. here take facility we mill. some will go out We'll using. form. sufficient It's with associated that notes shortly

Andrew Kuske

Okay.

So pretty vanilla plain grand it's the in of just scheme things.

David Gandossi

balance but of you'll find it's don't complexity. introducing notes It'll the find think any be don't sheet. you'll another I think, I complexity essentially, Yes. we're introducing senior any to more tranche

Andrew Kuske

profitable you the Okay. That's then within freeze the not those there? see very pricing the volumes call about in just market the the the side has and comments you gears viable Europe Do big earlier to been it's opportunity, helpful. there? base volumes economic U.S. then if Do the and basis? erodes if market And make lumber out. enough maintaining on in a you just have you a Obviously, to place put it shifting U.S. customer really market, and very good of

David Gandossi

in cost We efficient. market, we the absolutely. Yes, reasons is that get all market. I the I you very than got Prince logistics not lumber the And all got in. in explained. grand cheaper Eastern for can the We've for in volume Well, scheme of to fact, very from George, mean this can sure. seaboard be a choose the European to U.S. efficient freight to our plus huge

run. a can if we there then to going don't not the U.S. be we're believe I in think guys that prices I market, just to stay. where don't lumber just So that point, at there's Canada in a be ton are money of making

I catch you And and it gets that stocks and the then love just to takes long I So the medium or and steel North say, build as not lumber board overreact of more older. just between U.S. in all to we've of we've or just strategy year labor, up. see cost capacity America going you be because then got We got do fundamentals get got and equipment term any billion U.S. of don't kind two and long mean, demand to weakness. I is in older quarter finding the a you this and is and well, condition. time capacity company housing – to would the and stuff years a harvesting and all everybody if term at mean adjust a in conference X X lumber going to and years call great. sale feet for at years meanwhile, billion producers going a listen the are to growing to the before

seen ramp So as it's up never overblown. good did prices and And it. we've down But ramp seen is as never – own feeling pretty they fast prices as did. my feel they we've lumber we lumber it's about

Andrew Kuske

one final Germany, as different on but in unique what could few bit saw just That's than years perspective. fiber one some happening And then Europe right now and circumstances, a escalation you you costs in and good that's there's ago just a maybe now, ago more a I bit measured us of you so fiber compare went contrast out is you're control German think what and three to give of to seeing it saw, was on when years what or costs it now?

David Gandossi

Yes.

So big you to go I was the if mean back the escalation situation. that

fiber all and we're there Central forest Europe, And it's pellets, we about things think just of were I capacities, demands talked kind was plywood, lumber, but pretty a the board, in too other pellets a of lot lot buildup of on happened rapid all stuff. there quickly. consuming whether particle that

got of would out while. Europe from little for There everybody So a price and was the balance. away got supply/demand import very coming Central the into

and you as logistics is focus import build structure. our know, the an of strategies, on One

into the name for We've come had Baltic’s, So east pellet happen. run moved up usually Republic, for really wood winter years. last happened we we're didn't all the about while three of last in struggled. plants board, of entities Germany. pretty was, a and couldn't sides – east. basically east winter permanently moved Poland, kind nice The lot panel and a than Prices a survive particle the wood like and it, all wrapped consuming of million meters What X.X you A Czech have down. more moved either these in bring

ground winter frozen them for is winter is a harvest didn't normally and a – months. dry happen harvest. several and time just really for so great to to summer great the In And time Scandinavia, time

forest to So they into wood. had getting the difficulty get

We the pressure Baltic’s. pretty into up put a wet, of a quite on and summer March. dry finally Germany, very later we And summer. had it in in had froze the and severe, not a then we bit Germany as were Austria they to So that but moved

risk. of some think with for nothing we guys event struggled harvesting in fire fire, was the again, North a Sweden but it particular, Canada, in because really in I have significant them. They see up did So like Scandinavia Western forest what

just on all to then off the of of started quickly storms there's typical what And realization And those we sudden, bulk-bill. up harvesting the had lot just you based of approach is as get of we move out can. wood cost forest as couple available. had to the lack floor a wood a and So of and in situations, the a that the and

So there's how long to are roundwood. wall like of next see on now lot a time. is or we a as of period right lot there A of falling continues earlier, prices continuing on. woodcutting – a extended that saying and summer an was and looks wood. And potentially I for of for going depend that lot But so what

as So, we we our thought, we’ve pulp mills learned over the years to move witness close our to can.

to winter the the of regardless we conditions, access get wood. can that So

think to a the winter of here. happens full be over positioned what run my expectation is decline and regardless well steady in wood see I we’ll costs so And through to

Andrew Kuske

helpful. extremely Okay. you. Thank That’s

Operator

you. Thank

Stifel. from next question Our Pratt comes from Joe

Your line is open.

Joe Pratt

$XX Hi, $XX Dave. minor income for a million. just subtract million, the a I’d dividends here, year-to-date good see And net thing accounting estimate I paid. morning, then my and Dave

up expect go by $XX there? million, it’s $XX help million. I by So, but to Can would gone equity me up you out

David Gandossi

OCI, into other comprehensive later. translation maybe with get but we take could shouldn’t the That’s you right with I’m guessing other currency offline too callers. Joe. detail, all all We But to foreign much income, its that

Joe Pratt

fine. you. Okay, Thank

Operator

Thank you.

from [indiscernible] comes Markets. RBC from Capital question next Our

open. line is Your

Unidentified Analyst

guys. morning good Hi,

David Gandossi

Good morning.

Unidentified Analyst

or customers just question it and it end-use, terms in on by DMI’s does quick or does mean does what of how for that geography a Just mercer DMI, mix Mercer change change overall? with

David Gandossi

call. speak to question. really prepared not on that’s Well, I’m good a too much this

third traditionally would third America, their so that is maybe, middle have or of there, have mix noticed North mill really expected. China, don’t in the in about we the one we We’re the you DMI. And can one have third review. then I have tell marketing we they Japan. of current geographic any one role and activities levels of that operating competition different

to room that so some change customer that on. logistics see just into for of and based it’s and but little optimize kind stuff. us – and on we maybe get – customer bit all we it’s so And rearranging relationships too and early discussions to our a

So, have But maybe, nice it’s quarter on a great nice by question, us. for the but there. probably, we call. fit a It’s first opportunity more say we’ll a that going to see be to

Unidentified Analyst

in hardwood comment – now can that? does how And for strategy, play your out unlike that having you like that the mix you on

David Gandossi

ago, lot of about coming, forward talked I softwood, am a hardwood. that hardwood in sure impacts we also coming these about all and of if Well, off, I’m years hardwood – three we a that or I impacts but it that who fast eucalyptus lot talk and there’s things four Yes. pulp think, seems

impacts eucalyptus not the year projects agricultural paper that pulp growth based closing that and So coming. mean pulp recycling, for hardwood wall like it’s mean, the pulp there is is hardwood, a China, ground pulp of I X% and there’s in biggest and a about generally in anymore. is in on I few softwood, because the component of coming

So, feeling pretty good I’m about it.

– I think a I compliment think great it’s a it’s to us.

sort – us. from some of that if think paid can’t probably a It there I buys a – of aspirin joint and customer think one offering. was gets wouldn’t for want I

I it’s into think getting – you of us, want. time be good right but be hardwood it’ll new the for So, it’s quality to the

Unidentified Analyst

are incrementally and hardwood slowing nuanced keeping hardwood mix showing something missing categories globally NBSK look broader more XX to the versus just of world just price the hardwood we or more more more, a softwood in in this conversation been year, A because a at hearing stats down are that, this like obviously, market going the with we’ve machines differentials. on And within the are number softwood on meaning demand softwood. you people using pickup and paper try a

David Gandossi

what hardwood. gets of do And have higher, price the Yes. a then kind to really would don’t low the price question at spread can like back too or softwood. is use the That’s huge it NBSK and because flexibility to XX% too we the the super great their margin. shift when softwood. margin grammage and it’s high uses hardwood the products, see performance but of of of end will the speeds, softwood or or guys and way amount to then much that over more shift, about spread And happens the the like in they things. of down XX% guys at papers really the that of into pulp, think – the mercer are either that, substitution comes just see specialty tissue, substitution to their what’s between little over, that I those And specialty it way spread And its if a of they run kinds all high narrows, margin,

it’s of it. NBSK, NBSK it’s So, kind there’s is, a thing and papers products the – a there’s thing is that consumable the every It’s – use and that which It’s actually not and day stock, about what long pulp, toilet thermal fiber against up – advertising it’s not threat down. like And more people demand. really much consumer-driven there’s that premium, cup I like commodity thing. paper not like goes and

volatile the going So is a consolidation – it – grade about side, hardwood has less on the on on the it’s been much what’s interesting forward. think there should is, much production side. little a to how be

there’s big – players of in always tons north capacity now. regard, you’re that X player we’re million with a but seeing So, not of

discipline out lot that’s well. should help the would than more which as there market in been smooth to historically, a have that So

Unidentified Analyst

tissue demand, a or about to globally that with a growth incentive the cost, there is? quite driver pulp producers ease or of given a contracts And any tissue there under bit say tissue-driven on potential them of future are you pressure would talked bid is I with of a – is

David Ure

point this don’t to we to prices you want and our is market. prices get There’s see follow. be is whole the pulp and that. But something strategy Well, to up. is, if paper say, is what that you you another what Like to in for do Yes. your need demand by want to dynamic and in customers up, market they never would and the we certainly always guys thing they it destroy killing are do to

the pulp price their So a of guys harms sudden some and – discussions. form correction it they’re paper pricing, of actually if all on

that going do, people opportunity guys out So freak to think the don’t pulp are as long then paper they’re what and the generally prices that gives people as believe do, to I pushing semiannual guys quarterly like to does, pulp every or the price. keep But Tissue be it side do their tend lock some of month. can’t more the these or even annually. in going

and pulp of paper it their are your Or day, squeeze them on their are the end to the work. the belief here up, The going demand get prices the it of be longer high margin and take takes will guys up. way supply if have the going some prices But So in way trouble. get prices law that’s to they at through. to they’re will

Unidentified Analyst

market color. it All for That’s the me. right, thanks for

David Ure

Okay.

Operator

you. Thank

Our comes from Knighthead. Adam next question Zirkin,

Your is open. line

Adam Zirkin

Hi, you? are How David.

David Gandossi

Adam. Good,

Adam Zirkin

in build you go it’s target David, So seemed understand just sure are to inventory August. put a it couple make back questions. of and and want the I all, numbers inventory It a expecting to absent issue in why how releasing. this builds your when fourth I quarter first you forward

David Gandossi

Well Yes. to in to go We vessels inventory October. October. build two had ship in we

inventory So vessels. you’re building for those

Some of be it’s line to sold. in

it sold. so you And it’s be the vessel, you important. on not it put But of until will – can’t some

in build of you that. So anticipation

at also end roughly quarter in We should that QX arriving. XX,XXX the had that ship have of shipped because tons late was the didn’t vessel the

the So that issue. compounded

Adam Zirkin

pulp said vessels And that those have been shipped. has since

David Gandossi

Yes.

Adam Zirkin

Okay.

you for that. – so right was a numbers I the was, that tons had than understand of my those inventory question given guess I had third quarter, below less XX,XXX the So end the year in target the you

David Gandossi

times tons, QX somewhere equal, That’s will normalized XX,XXX that. achieve pulp. things that number target. for produced; be XX,XXX with should sales there further beyond being all has some there expect what a XX,XXX and means which will between QX we and some We be

Adam Zirkin

that That inventories of quarter to the abnormally also end low. at second the the were seems imply

David Gandossi

very tons. That They true was XX,XXX very, were, absolutely low. at

Adam Zirkin

Got it.

Okay.

So in the should four reverse, approximately quarter? right tons XX-or-so-thousand

David Gandossi

to also I mills that on work and think it’s reflect And important the yes. all Yes, we’ve three running done well. they’re all at

to big have production going to additional this have we’re we’re So through. come to boost little and a quarter going

the be fourth quarter. So in quarter, there’s of volume strong going a to sales good

Adam Zirkin

maintenance focused what those been you issues up then production number you startup on not the at number, the – with number looked have And do if release, and ramping I it. also Frankly, for mills. the okay. about eyes issues? the talked Got my when But would you inventory looked the production think the

David Gandossi

Well, a let’s things. go couple through of

to quarter capital the million a as In really of of the produced there. the production But we the about produced what is sawmill previous XXX – be we about the if quarter. at result going didn’t spend million. look the change on you board after guide feet So in we XX fact, it lumber

upgrades, I going pretty think quarter XXX the is in the to come million. sawmill to With close fourth

So we – the sawline it mill, technology is what link we in to main upgraded was did we link. available the most which a current

And that’s putting the and saw new optimize the log quality. speed in maximum put into we which cutting put horsepower increases a so side board and it shifting, pieces. We optimization, out rotations, upgrades, sections product horizontal in, height

a was effort. big it So

it, run but of We have how the and on reasons we and completely produce safety just for got thought everybody thing, the shut it site. the things. for work we was and and line the it lumber and and a this in just we focused efficiency during got workers on the second down realized as was originals sensitive we We for and capital tight maintenance of we’d second decided how line into some line concepts health second

it. So again, a pain way for for but the we we signal about think have something it’s the short-term long-term that market, gain didn’t is, to

things as did with shut. And it Rosenthal’s was what know, the the couple but at our Celgar, quarter. in we really On well think little just went nothing Celgar getting started, I remind digesters. you maintenance we side, pulp A debottlenecked listeners, really of second hiccups to notable and

So at best mill look changed digester two year. work. XXX,XXX with the could been the we the has at and roughly we XXX,XXX could Stendal that concepts digester and tons a Celgar we the way we flows both working where that’s had running do to And through

improves put which middle digester. of new and significantly debottlenecks So the nozzles digester. in decks we screens, He XX washing around double in the put the the

that XXX,XXX is to goal. which So digester tons, to up debottlenecked our take today us is

have in call, middle since other is come, wise we about going step been the last mill will at running which we has what of to rate the will forward. of So XXX,XXX tons, achieve. that in address annualized we signaled bottlenecks July, that But exactly end which we expected the an

in, sprint little when lots in We’ve accomplished. new mill it put the of a run capacity but got digester, while. a had learn two to mission to heart the you’ve took So

So, you that’s teach on you a their put guys mill. is to can’t hands And the you you drive pulp exactly the can’t drive of this way a the somebody until – kind Ferrari change do when wheel. in it

running the just disruptions, else and those temperatures and what and how standard all chemical to You the adjust dosings operating have to suffer learns and that flows everything start happens. procedures, while everybody

well, we front had in Guys say, You as had on a of way learn really your I job, a through. it’s now and running the it not that error did but you the lose half and anticipated. by as handle tons been work trial great got they’ve quarter

Adam Zirkin

the Celgar production in So what the quarter? was of

David Gandossi

a The XXX,XXX Total just second. production QX give tons. for you production was I’ll in Celgar, Celgar’s

Adam Zirkin

Okay.

So run X,XXX the tons the of you rates rate. – X,XXX tons terms off lost or X,XXX run in tons

David Gandossi

Yes. kind be QX thing. XXX,XXX could of target approaching

Adam Zirkin

Got it.

Okay.

pricing the how timeframe months? It’s I others Can of Turning me to couple a a as who pricing relevant? lumber see you it know second, modest declines sense you market. the give and is just been for last Or for for me easy the whatever David. don’t well perhaps of don’t U.S. over for have see European very feel to data markets.

David Gandossi

you no see and that. opportunities. is know in links. you how don’t so where different many different products We I that like Adam, guide sell shift There an SPF can not random here quantify different markets over to products it’s like in

the For at we market UK push could at we push the lumber could example, or lumber KBH.

the I best the is, the do $X think could I like for mean, do I expecting EBITDA That’s I lumber. for So can at million I’m quarter you. moment something best

Adam Zirkin

the expect per so, that the $XXX X,XXX you where – from shakeout fourth in right, would about of sort you Where right, from shakeout real average, to to the where right, yes? expect sequentially, feet, quarter? in would on Right, $XXX expect that right? you went this realizations, But would or

David Gandossi

know, it at I’d stays been market get where whether don’t is the market. $XXX not. or other be than Adam. depends level Europe, always that to It more stable this I trying has any to lot U.S. you on a

are in significantly. There So And for short be good – things let’s we us. U.S. period to anything rebound. but the sell breakeven not still of a slightly fallen market areas pockets it’s that unless time, off will for of today close

Adam Zirkin

for to U.S. saying time. short close of breakeven, will period you’re a be

David Gandossi

Yes.

Adam Zirkin

I’m estimate embedded Yes. of understand in what in is I you sort price trying behavior that Europe David, gave the guess just to $X million us?

David Gandossi

today. not can Well, what see frankly, much we change

Adam Zirkin

Thanks. That’s Okay. helpful.

David Gandossi

Yes.

You’re welcome.

Operator

question comes next Jacome, Sidoti. of from Your line the Dan

line open. Your is

Dan Jacome

Good morning.

housekeeping on oddball couple questions of a Just Daishowa.

hardwood one then pulp the Alberta grade how and can to quickly do they DMI there like I curious looks to the other, mill, it mostly from swing vice so versa? So softwood hardwood pulp. just capacity the

David Gandossi

about they They hardwood. more think softwood, average, have sort XX% And go less is on up I the on XX% or it been mills capability to could of the doing fly.

mill if to. XXX% hardwood that run could you You wanted

in and gives that’s think XXX roughly the the the NBSK ran last that you XX% year XXX,XXX ton – capacity. I

example. for you tons, If XXX,XXX you ran would be for hardwood, XXX,XXX or maybe

the the an it’s pulp of kind So strategy the cost things. availability of be informed wood those and by price that and operating grades will and

Dan Jacome

that like the stretch? to just or capacity a Would get get to – is kind NBSK able you would flexibility. that to I XXX% No, of you be that

David Gandossi

can’t you No, Dan. Yes.

Dan Jacome

Okay.

David Gandossi

need if to mean, that our to wood it you at do decision aspen. the that. management run XX% were a that, But it fair agreement I predominantly sustainable and forest that’s softwood, has huge harvest could

Dan Jacome

by supply, right just XX% handy? If range where grade you days good. And Are of then of for is you softwood. chance that’s global or Do is on that understand, that data don’t, XX% XX% for in No, hardwood think the to pulp, still Okay. hardwood any have said kind that? where now? the I you I we curious the point

David Gandossi

I of here of piece don’t me. a front on paper in it have

Dan Jacome

you going then convergence of Okay, on an email. producers global no full you And – send worries. off to possibly the were I’ll pulp. softwood talking about

on missed starting have it, or days. you would first like first switched the that? I I quarter the take of mean, in because to do And do a but XXXX you sorry be it place? of don’t I have expect end timeline maybe to that these capacity When access would if XXXX that

David Gandossi

Yes.

of and beginning in on it it think the year come starts XXXX and through I carries with of some XXXX. will

Dan Jacome

Okay.

David Gandossi

convert to need softwood that is eucalyptus ton plantation for has pulp, to got they stated dissolving mill that to XXX,XXX example a Albizia to been but got they’ve begin that they’ve harvesting. or

So in and that’s all converted mills mills to hardwood other now. Scandinavia Celgar that are There’s a that couple coming. of

Dan Jacome

Okay.

David Gandossi

there’s Japanese tons another in XXX,XXX mill a and happened, of that’s it’s the Like integrating more of lot paper. coming. – of some it’s

Dan Jacome

you. Got

starts first… So it

David Gandossi

of of to the now the because harvest. XXX,XXX XXX,XXX they’re to tons out Mistake, process required market term softwood

So over. pull those just

Dan Jacome

it All spread that. have the right, missed so it might starts quarter I be XXXX? out to seems Okay. and XXXX of to first in

David Gandossi

substitution for XXXX softwood. do and – although and [indiscernible] just for Japanese I’d is done, I’d it is happening extra Maybe Yes. ELM ELM year, has every XXXX’s say, Albizia say, ramp the all the up, hardwood I is

Dan Jacome

Okay, great. Thank you.

David Gandossi

we hardwood the XX for inventory you, before moment. just days Dan days the And lose – is at the

Dan Jacome

you. Thank

Operator

of Your question from Graves, line Hartford. next comes the The Tony

line open. is Your

Tony Graves

taking my Thanks question. Good for morning.

XX it thinking us you’re maybe you allocation sawmill acquisitions are? months. out future different the of how call update Just an capital about softwood, give the forward? you curiosity, And over the guys what three have priorities greenfields on going pretty completed past, Could

David Gandossi

right up ourselves company. see the we Yes, We growth so as go a big picture. if guess Sure. I

organically through aggressively are M&A. intending We both grow to and

main We have areas. four

lumber, have downstream value other processes. needs. would But We extractors our can product a material extractors produces existing and extractors, also processor energy either low where from take that can forms the – byproducts pulp, that include from a you that of substance, market

areas focus. four the are those So of

to balance our on a dividend. inform of want with time. years, Daishowa increase dividend a balance the a to growth. us. over We growth growth is want what to we allocation, you growth activities on steadily all reward need also really to about we But that want will But stock. said speak intend we also the the paying always with slowly We’ve for to will redeploy shareholders great have we earnings of into the When we of the that sheet. it safe pace dividend of side. and healthy depends be We’re reasonable size of over a acquisition extent the dividend have pace and our

but long-term deal. been great the I been It’s to grow, hearing and for much pay going the And with say, going going have we’re with group us the mill. workforce. think few we’re The mill to mill. something. to quality DMI years valuations have We’re challenging following good pleased pulp, analysts too tremendous are who’ve not a we’re me last discipline grow, to we is for supply, so River quality access Peace great fiber a It’s a been that high got markets, very the got really would

We’ve in we’re our So that. got always thrilled growth with pushing and existing that. organic we’re assets

I ground at can in year we As deployment. existing should X%-plus, X%. high three earlier and trading the That’s good capital capital our at comments put be payback or put if into better. return hit a assets, capital We you can can my mentioned in that, a we

do Let’s all day long. it

philosophy, time. balance process growth, all maintain strong And So on. to a and it sheet. we’re doing operating and in where M&A way going And a organic through steady, we consistent growth have talk so what of another optimization combination matter about strong what’s them cycle, Mercer the we core company, And have operator competencies, is all important happens. be no that improvement Mercer throughout a will that about a continuous these the is we

curve, park you of or bottom the hit cycle. If the cost the top to cycle where lower can of the the at the on you be. you’re it out of That’s want

only you curve. quality end assets high assets the low of can position always the at focused cost we’re and that So on

lot So but going there, forward. a allocation that’s of the stuff bit of strategy capital quite a

Tony Graves

an then by on give Celgar what Yes. That’s I a shipments update And you us Thank earlier. and were just you. the helpful. you know follow-up, could had production mill?

David Gandossi

Dave’s think got schedule I Yes, here. a

David Ure

through them. rattle Yes. We’ll

Stendal for again the XXX.X of XX.X, XX.X Celgar Stendal a sales in thousands for XXX.X. XXX.X, XX.X, volumes So for tons of volume the of and in Rosenthal and Celgar Rosenthal tons production sales thousands

Tony Graves

Thank much. you very

David Gandossi

Welcome.

Operator

Thank you.

Our next Sean question from comes TD Securities. Steuart,

Your line is open.

Sean Steuart

Thanks.

Just the DMI for XXXX one at the mix, here. have on a getting in this call budget more do CapEx is point? With long in you guys we’re view

David Gandossi

that, for Too Sean. early

just don’t financing great I over this how mills, want opportunities existing wait at got on Sorry, we’ve Cariboo we’ve stage. I Peace either and under a these feel River I what the goes to all want pulp deliver. or promise good for have And seen don’t really and until just to

because So appropriate that the timing else everything obviously. can of we’ll based happening, discretionary be those be size to on things that’s

So give we’ll year. better you of a a was picture and the yes, quarter by the it end

Sean Steuart

Okay. Thanks, guys.

Operator

Instructions]. back Thank time. I’ll see further the the turn questions management. And [Operator to in queue you. no I call at over this

David Gandossi

that. maybe a And Yes, couple comments. Thanks just okay, for closing thanks. just of

to summarize well. upgrades, next want capital from talked three maybe be every just But one of doing some analyst it’s it’s have maybe report, list. for So we’re what QX – the up, where in million well sawmill going, couldn’t I things mean morning, XXX volume where does job I should points and the of about better difficult you’re a or to board the you maybe here feet. we’ll just guide that are production terms and to to I could do All pulp just running QX, QX think in when time. somewhere of is the things the this mills single fairness And highest in just that bridging So to our picked analyst read QX? signal we around next ever, we precisely translating from running make those

Rosenthal, relatively a issues Stendal the review, things The tons, with be can inventory. we’re got days to The cost, in quarter. through with it our be maintenance no But assume Europe. we So costs press fourth wood very positive $XX.X won’t on see three in in should reduced coming put that it might We’ve great are are two. going release volumes. about XX,XXX got you be Remember, they’re way. progressing There production costs there. extra and improvement flat million of in of We’ve read a quarter. some the

tons to you up earlier, to of XX,XXX changed EBITDA. So million got inventory the of around numbers just $X eight. pick referred And

third was turns hit lost So quarter. the when but of second in hours maintenance $X.X had about all quarter the of – because on $X.X or with million turbine. third to didn’t got gigawatt of running million, this, we we quarter. we fourth the it full about the – talk That the Everything’s in

all well. that’ll up as So pick

be of a bit third the quarter. mess in to a fourth but quarter, going strong So it’s

So things. It’s don’t my over message. blow

And February. thank you joining in so call you look again all and to for the forward all to speaking

Operator

much, very today. ladies today’s for This us gentlemen you Thank conference. and joining concludes

now may You disconnect.

Mercer International (MERC) 26 Oct 182018 Q3 Earnings call transcript