Mercer International Inc (MERC) 2009 Q4 法說會逐字稿

Good morning. My name is Whitney and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Mercer International fourth quarter 2009 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer session. (Operator Instructions)

Thank you, Ms. Alexandra Tramont of SD you may begin your conference.

Thank you go morning and welcome to Mercer International 2009 fourth quarter conference call. Management will begin with formal remarks after which we'll take your questions. Please note that in this morning's conference call, management will make forward-looking statements that were made in the press release. According to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, I would like to call your attention to the risks related to these statements which are more fully described in the press release and with the company's filings with the Securities and Exchange Commission.

Joining us from management on today's call are Jimmy Lee, President and Chairman, and David Gandossi, Executive Vice President and Chief Financial Officer and Secretary. I will now turn the call over to David Gandossi. David please go ahead

Thanks Alex, and welcome everyone to Mercer International fourth quarter earnings conference call. I'll begin with some prepared comments on the key financial aspects of the quarter and then I'll pass the call to Jimmy whole will speak about the particulars of the markets, our operating performance and some of our strategic initiatives. As always we'll be pleased to answer any questions you may have following our remarks.

Let me begin with a few comments about our financial performance. As expected, we experienced a significant improvement in our results driven primarily by a remarkable tight pulp market. We completed a major maintenance shut in the quarter and considering the impact of this shut fourth quarter, 2009 was also a strong one from a productivity perspective. And although the US dollar weakened in the quarter, pricing gains significantly offset the foreign exchange impact relative to third quarter 2009 and I'm sure that all of you are foreign exchange has been really moving in our favor since the year-end.

As you will have seen in our press release we reported net income from EUR.7 million for the quarter or EUR.08 per share, compared to a net loss of EUR59 million or EUR1.63 per share in the same quarter in 2008. We reported EBITDA of EUR23.5 million in the quarter compared to EUR13 million in the third quarter. For those interested in US dollar equivalents this is about $35 billion of EBITDA in the current quarter, compared to about $19 million in third quarter. The most significant contributor it the increase in EBITDA was the improvement in pulp pricing, which was partially offset by the impact of hirer fiber prices and weakening US dollar.

If I can switch from cash flow for a moment, overall, our cash position was unchanged quarter over quarter. The significant movements in cash flow were EUR13 million of outflows due to seasonal increases in working capital, EUR9 million of high return capital spending and EUR16 million of interest expense. These outflows were offset by EUR23.5 million of EBITDA and about EUR9 million of cash inflow from the Canadian government's Green Transformation Program to fund Celgar's green energy project.

For liquidity, including the EUR25 million of undrawn revolver available at Rosenthal, we currently have cash equivalent of about EUR76 million, which is comprised of approximately EUR45 million for the restricted group and EUR31 million at standoff. As most of you are aware, we've been allocated nearly CAN58 million Canadian under the Canadian Federal Governments' CAN1 billion Green Transformation Program. At the end of quarter four, we received our first grant under the program of about CAN13 million. This funding is being directed to our Celgar green energy project and construction is progressing nicely. We currently expect to have this project complete near the end of the third quarter of 2010. In addition we are currently looking at other small high return projects that might qualify under this program as we will is have almost CAN18 million Canadian of allocation remaining under the program after our Celgar green energy is completed. All the spending will be high return capital.

On the financial structuring side, we completed a private exchange in quarter four, totaling approximately CAN43 million, of our 8.5% convertible season senior subordinated notes due 2010. These notes were exchanged for new 8.5% convertible notes due January 2012. We recorded a gain of approximately EUR4.4 million on the exchange. I should also point out this gain will reverse itself through interest expense in the coming years as the debt that is currently recorded at fair amount is accreted to its face value in early 2012.

We're also pleased that on January 21, we completed a second exchange of almost all of the remaining old notes for the new notes with identical terms as those issued in the December exchange. Subsequent to these two transactions, we will have only CAN2.3 million of the old 2010 notes remaining. We expect to record a small loss on the second exchange transaction, which will also be reversed through interest expense in 2010 and 2011, as the debt is accreted down to its face value.

The refinancing of our old convertible notes was an important step in improving the valuation of our all of our securities. With the improving pulp markets, we expect to start benefiting from a degree of financial flexibility that will ensure we stay focused on increasing our operating efficiencies and continue to improve our balance sheet. So with that quick overview of the financials, let me turn the call over to Jimmy to talk about our operational market and strategic developments.

Thanks David, good morning, everyone. As David mentioned after a pretty disappointing start to 2009, we gained some good traction on several fronts. We were generally auto pleased with the progress in the quarter, particularly in light of the foreign exchange headwinds and the amount of maintenance we completed in the quarter. And I'm also particularly satisfied that the Celgar green energy project construction has resumed so quickly. We have grove very confident in the pulp markets ability to return to normal and support price increases so marketing has returned to the forefront of our focus. And like our marketing efforts, we remain committed to bringing our high returns strategic projects to a conclusion. I'll talk more about this in a moment, but let me first comment about the mills.

A couple of operational upsets in the quarter limited our productivity slightly. Otherwise our mills would have been running at near record levels of 2008. Rosenthal had a strong quarter and continues to run well, with the wash press project already performing as expected. Celgar lost two days due to operational issues that occurred concurrent with this annual shut but otherwise ran well with near record production. Stendal also ran well but due to the failure of the power transformer in late December, the mill was forced to slow down slightly and was also unable to generate enough electricity to sell surplus power. In total we produced 357,000 tons of pulp compared to 346,000 tons in third quarter and 339,000 tons in the fourth quarter of 2008. And while the transform problem limited our ability to export power for a few weeks, we nonetheless sold 116 gigawatt hours in the quarter compared to 108 in the same quarter last year.

If I could turn to the pulp markets for a moment, I would generalize it as extremely tight. As you know, current pulp inventory statistics remain very positive with producers global soft with inventories falling about 23 days today, which is amongst the lowest levels in nine years. And while there remain some concern from some analysts about China's ability to continue to buy at the rate we have experience during the past six months, as the global economy improves, we believe a sudden collapse of the Chinese buying to be less likely. So on the strength of the low inventories and improving shipments, the industry implemented $70 US per ton of price increases in the fourth quarter alone. In addition, reflecting the tightness in the market, another $60 US dollars per ton has been implemented in Europe and $50 per ton in North America and Asia in the first quarter of 2010.

The price increases by us and certain competitors will take the price to $860 US per ton in northern Europe, $880 per ton in North America and $750 per ton in Asia. The current price in China is now only $20 US below its peak of 2008. And as you know, our sensitivity to the list price is almost immediate. Each $20 US dollar per ton increase in the price of MBSK, roughly he equates to addition EUR20 million in EBITDA annually. Our sales volume was at normal levels for quarter with the maintenance shut. Sales volumes total 352,000 tons compared to 362,000 tons in the third quarter and 364,000 tons in fourth quarter of 2008. We believe that the upward pressure and prices will remain, and that the momentum will increase, particularly since the value of the US dollar remains at historic low levels. The EUR equivalent for US dollar today is about EUR1.37, compared to EUR1.3 just nine months ago. But while the US dollar remains relatively weak, it is stronger today than at December 31. We estimate that if the foreign exchange remains at the EUR1.37 level, that will positivity impact our third quarter EBITDA by EUR10 million.

Now let me take a development to discuss developments in the wood markets. As we discussed last quarter the market settled nicely in the first three quarters, with downward pressure on prices quite noticeable in our results. But as expected our wood costs had begun to creep up in Europe, costing us about EUR5 million more compared third quarter, we expect on average that our wood costs will continue to increase slightly in the first half of 2010.

In Germany, wood prices were up both for whole logs as as well a residual chips, although our average wood costs remain much lower than the same quarter of the, of last year. The deterioration of the global housing construction that has had a dramatic impact on the board producers continues to reduce our competition for fiber. Our ability to consume wood in either whole log form or as residual chips has meant that we've been able to shift away from less abundant residual chips and focus more heavily on the whole log supplies that were previously the target of the board manufacturers. But we are now reaching price levels that are low enough to begin restrict supplies. In recent months we have noticed reductions in whole logs being brought to the market by landowners who are holding off for better pricing. In addition, residual chips are in short supply as saw mills productivity in light of the poor new housing market, which still remains very depressed. To complicate matters, much of Europe has been impacted by severe winter conditions in recent weeks, leaving behind unusually large snow accumulations, that of course, has impaired wood deliveries.

While the wood will begin flowing once, again, once the recent snow accumulations are cleared from the forest roads, we have decided to take the precautionary measure of easing back on our production for a few weeks. We expect that doing this will take out no more than about 10,000 tons of production, but will remain enough to keep our wood inventories at manageable levels until the weather turns.

In British Columbia the overall fiber cost trend is more positive. We've been very successful in developing new supplies of whole log pulp wood for Celgar and we believe that we have addressed our delivery cost issues. While saw mill residuals have been harder to come by, our new wood room continues to improve its productivity and so we believe that the downed- wood wood costs trends at Celgar will continue for at least another quarter before settling. It's worthy to note that due in large part to our wood optimization efforts, our wood costs at Celgar were over EUR20 million lower in 2009 versus 2008, and we believe there's more to come.

If I can spend a moment to talk about energy, we're pleased to have been allocated approximately CAN58 million from the Canadian Federal Government's Green Transformation Program. As you know financing our green energy project was challenging and access to this funding has allowed us to quickly restart the project. As David mentioned during the quarter, we received approximately CAN13 million and despite our previous set backs, if all things go as planned we expect to have the green energy project completed by the end of the September of this year. We're very pleased to return this project to action, and we have done so with only about a five month delay. We're anxious to generate addition electricity will boost our annual EBITDA by CAN20 million to CAN25 million.

To make a few closer observations, we continue to believe that the tightening market that was interrupted by the global economic crisis is has returned. We're buoyed with the market strength in recent weeks and expect implementation of further price increases in due course. And it's important to note that during the downturn, we never lost focus on our various strategic initiatives. We're confident that our resilience during this period will be rewarded in 2010 as we bring these initiatives to conclusion. We believe that there has been a significant and continuing adjustment in global production capacity for softwood pulp. We also believe that because of the pre-existing inventory levels, the impact of this lost volume is only now becoming apparent. We remain focused on increasing margins by reducing costs as well as increasing the mill availability at all operations and improving the returns on our by products, such as excess power. So with the conclusion of my prepared remarks, perhaps I can now turn the call back to the operator and we can open up the call for questions. Thank you.

(Operator Instructions) We'll pause for just you a moment to compile the Q and A roster. And your first question come from Bill Hoffmann with RBC Capital Markets.

Good morning. Dave, I wonder if you could give us the production volumes by plant in the quarter and then I just want to, looking forward here just talking through the progress of your capital spending outside of the energy project this year?

Okay. Bill, the production volumes for the fourth quarter were for Rosenthal 85,000, for Stendal 159,500, and for Celgar 112,300.

Okay. And as far as capital spending in this year? Outside of the energy project.

The lion's share is the energy project. You know for model purposes you could think about EUR2 million per mill otherwise.

Okay.

Which is high return capital as well.

Right. And then just as far as your normal seasonal working capital usage here in the first quarter, between the log build, which sounds like it's going to be a little bit different in Germany this year as well as up in Canada, do you expect to sort of see the working capital cash needs to be in the CAN10 million to CAN15 million range or is it going to be higher this year?

We just done our lion's share of our build at the tail end of the year and a little bit in the first quarter and it should level off and the only fluctuations will be timing of shipments and what happens in receivables from that point on. A little bit of bumpiness comes from payables as well because the capital spending at Celgar, but our working capital levels are going to be fairly steady going forward. With we're not going to have the build builds we used to have in previous cycles.

Okay. And then just final question for Jimmy. Could you talk a little bit about what you guys are hearing out of the Chinese market at this point in time? You mentioned markets being tight and we sort of get that, but as they head toward a Chinese New Year and the like, what the buyer patterns are, what the inventory on the ground might be?

Yes, I mean, surprisingly we were of course, expecting that the purchasing pattern, which traditionally going into the Chinese New Year tends to weaken from China, would have been the case this time around as well but what we noticed was that the downturn in purchasing wasn't as significant as prior years. So the expectation of, less purchasing orders coming in because of Chinese New Year certainly was surprising in terms of strength. It didn't really go down as we would have expected. Now we won't know until after the Chinese New Year's over what the pattern will be, but based clearly on the pattern that we've seen prior to the Chinese New Year, it seems that nothing's substantial has changed in terms of the purchasing orders that have been coming out of China today.

Do you get a sense of what the inventory levels are, I just wonder as we get closer to peak here they usually back off pretty quickly on purchasing.

My understanding certainly in terms of hardwood sides seems to be still very tight. I know that the softwood side, there was some talk toward the end of the last year that there was some sales by traders, but I think that was really more in terms of rebalancing their financial credit lines etc. more than a surplus of inventory because certainly my discussions with them did not indicate in any way a significant stock piling of inventory where they're anxious to dump into the market, so I don't think that the inventory levels in general are that high. In fact, as we know at least certainly from our own sites, our inventory levels are at still extreme low levels and the winter conditions globally has really not helped the producers in any way in getting back to more normal inventory levels, so our hope going into this year would be that the expectation of a weakness coming out of China would allow us to build up the finished product inventory to more normal levels because of course, of the restricted production volumes coming out of the winter conditions for us and also we're hearing that is impacting other people, even in Brazil as an example.

Thank you.

Your next question comes from Paul Quinn with RBC Capital Markets.

Thank you very much. Good morning, guys. Just a question on pulp markets we saw inventories rise two days of supply last month I sort of have the expectation that they go up another two to four days for the next two months before sliding back down, is that sort of consistent with what you're thinking?

Yes. I think still we're at historically low levels in terms of inventory both at producers as well as consumers as well as at the ports. I think we still have room for inventory levels to reach more normal type of levels before we feel that there would be any expectations of any pricing moderation, so clearly we're not there yet, and we'll have to see what the numbers look like as a result of the reduced production volumes coming out because of, of weather related conditions globally. So I think at least for the first half, the situation is still quite reasonably strong. The second half is difficult to read, but I would say that our expectation or certainly a lot of analysts expectation that the second quarter would start to show weakness, I don't think that's probably the case based on the momentum as well as the inventory levels that we're seeing. So, if there is going to be some indicated weakness, we won't really see that probably until the second half, and that's clearly not quite visible yet.

Okay. And just on your specific customers in Europe on the paper side, I mean, we've obviously seen the Euro slide off here, so the price increases on the pulp side are definitely going to be felt even more by your customers there and at the same time they're trying themselves to get paper prices up amongst very weak consumption trends. Has there been push back from those customers in terms of recent price increases and do you expect that going forward?

To date, we haven't had a lot of push back. Let's face it, the currency movements have been a little more significant in the first few months of this year than at the end. On average, the builds they will receive as a result of currency adjustments will be a little bit more painful than the increases that we've announced just in dollar terms. So yes, let's say that they're not happy with it, but at the same time they, they do realize that supply's limited, and so it's not like there's a lot of spot tonnage, in fact, there's very little spot tonnage, so there is the need and so they will of course, complain, but at the end of the day, they continue to purchase the required volumes.

All right. Thanks, guys. Good luck in the quarter.

Thanks.

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

Hi, good morning. Two questions. Jimmy, on your script you talked about the currency levels in this quarter, if it remains the same would have a positive benefit of EUR10 million, was that for the quarter or on an annual basis?

No, that's basically means on a quarterly type of basis.

Very well. Good. Can we ask a few additional questions kind of on the Celgar and the grants etc. Do you feel you'll be able to finance and get some attractive financing down the road on the cash flow, the steady cash flow stream that energy production would generate for you, versus obviously cash flows from a volatile commodity? And what would be the likely timing of your ability to do something like that?

Well, I mean, certainly we are analyzing it, but of course, though the power side is steady, the reality is, it's still attached to the commodities side because you don't produce power without producing pulp, so the issue still revolves around, I guess a model which would allow whoever is looking at financing just the power side to be comfortable with the ability throughout the cycles to produce sufficient pulp to generate the power that we're obligated to sell, and so clearly it's not just a simple matter of just packaging the power facilities and trying to finance it that way. So I think we are looking at various modeling and ideas and all that, but I would say that it is not a simple kind of a structure at this point that would allow us to tap into just the power based financing to the levels that clearly utilities would be able to access funds in the market.

But other cogent facilities are similar that they depend on the production of the underlying product.

Yes, but it really depends on the field source and as the bulk of our fuel is coming out of the burning and the recovery boiler.

Yes.

And of course, the recovery boiler is very depend enter on the pulp production side, and so to detach that, you would have to either incorporate a much larger bio mass boiler, which is independent of the recovery unit, which would be very expensive, or you would have to find a solution in terms of alternative fuels in the sense that if you had a shortfall in pulp production to get a bio mass based fuel that would be burnable in the existing recovery units without significant modifications. So those are the issues that we have to think through, and there's no clear cut simple solution today in terms of giving a level of certainty of maintaining a bio based production independent of pulp today.

Okay. And the likely timing of, though even being able to gain attractive terms on a financing, would that need to wait until the cash flow stream is already up and running?

Well, it's dependent on a lot of things as you know, Andy, I mean, the credit markets --

I understand that. That notwithstanding.

Yes I think we're seeing the credit markets certainly much better today then ever, plus our cash generative is much better this year and so I think as we go through the year, there's going to be much more flexibility and options able for us.

Yes.

So I think it's something that's very difficult for me to really comment to any certainty.

Okay. What would Mercer's net cost likely be in this project after all the various grants, what I'm getting at is, what's kind of like the total cost of the project? What do we have into it or expect to have into it that will be on our books, and thus determining kind of what that off balance sheet amount is just like the sizable German government grant money that went into Rosenthal and Stendal.

If you look at it being roughly a CAN57 million project what we've put in is roughly CAN10 million and the balance will be financed from the government, so out of the project, CAN40 million is the government money right?

Okay. When you refer to those 57 and 10 that's Canadian or that's --

No the 10 you think of in Euro because it would roughly in terms of the Canadian dollar.

Okay.

So about CAN16 million, CAN17 million.

And you still have the penalty for starting up late after May 1 or is it (inaudible)

No, we're not looking at any penalties in the result of the September expectations start-up date, in fact, we have more than sufficient room, even if the start-up is delayed beyond September.

Excellent. And lastly on the Celgar or the grant area, have you identified other eligible capital projects for the remaining CAN17.7 million of Canadian government grant money?

I mean there's lots of projects that we're working on. In fact, they're very accreditive in terms of paybacks and so it's just a question of prioritizing the type of project that we would like to do, because there's many angles to this, and so we're filtering out all of the different projects and having a better idea as to where this will improve not just the earnings capability of the mill, but also future potential in terms of production increases and, and other things that would benefit the mill, so it's a process. We don't want to rush into it. We have lots of time. As you know, we were the first recipient of the money, so everybody who's getting the money still hasn't even started to implement projects, so there's no urgency on our part to really rush into something before it's fully thought through, and so we certainly have lots of projects that we're working on. It's going to be a significant benefit to the mill but we're really trying to put the right priorities in terms of where that money should go into.

Okay. And, and in terms of understanding where you're focus is for additional monies, you're generating incremental cash flow right now. You've got additional cash flow starting in September from Celgar energy, you presumably got lower costing financing on the energy project cash flow when it's up there and running and stable. You've got no major debt maturities now until the new sub debt is due, you've got large Canadian grant to meet most of your CapEx at Celgar, so what are your thoughts on the use of all this incremental ability up cash over the course of the next two years, is it going to be focused and dedicated on deleveraging and debt pay down?

We had a lot of liquidity draw down last year as a result of course, the severe weakness in the market globally, etc., and so we need to rebuild the normal levels of liquidity that we need to maintain to of course, overcome the difficult conditions that we may expect to see in the futures, but clearly considering the severity of the downturn last year, if it wasn't for the green energy project, I think we had a lot of room considering the extent of the downturn and we came out of it quite well. I mean, it was the ongoing project that of course, had a taxing ability on our liquidity. As you can see we have to put in something in the order of what, EUR10 million plus into a project that we expected we would not really have to put a lot of money in. So if it wasn't for the government coming in, I think the situation would have been way different. But we are going to rebuild the working capital levels, and if the market continues to be stable like we're seeing right now, then of course, we will have a significant build up in cash, and we intend to then look at our options at that time, and what the market conditions would be at that time, and what the debt markets are doing, etc., etc., and address the best use of the money, but there is no major capital project that we are looking at undertaking. There's no acquisition, so really we'll be addressing those cash build ups based on what the market conditions are, both in the pulp markets as well in the financial markets and looking for the best alternative use based on our assessment at that time.

Thanks. I have a few more questions, I'll back out into the queue and let others ask and come back to us.

Thanks.

(Operator Instructions) And your next question comes from Mark Gilly with Invesco.

Good morning. You I just want to make sure I'm thinking about the Canadian government funding correctly. That's grant and not debt, is that correct?

That's correct.

And where does that ultimately end up on the balance sheet once spent? Is that in PP and E?

It's the same as what happened in our German situation, so it, it sits as a reduction against the property plant and equipment, so just, if you didn't know, Mark, we had about EUR375 million of government grants in Germany, so that sits as a reduction of the fixed assets on our balance sheet. So our balance sheet is really understated compared to the invested capital in it. Canadian grant of CAN58 million will do exactly the same thing. It's like getting equipment for free and it doesn't show on your balance sheet.

Okay. Thank you. And one last question, the inner company debt between the restricted and unrestricted group, can you tell me how that was generated?

That was the money that, that we put down into Germany to buy our equity interest in the Stendal.

Okay. Will it be repaid?

Yes . The history of that, the money was financed by the convertible debenture that we have outstanding, that's how we really financed our participation in Stendal, and it's subordinate debt to the Stendal government guaranteed bank debt, so we have to get all caught up on that facility before we can start drawing liquidity out of Stendal.

Okay.

The prices that will start to happen in the next few years. It's all dependent on how strong the market are in the future, when we can start repatriating that money.

Okay. Thank you.

And your next question comes from Chris Dechiario with ISI Capital.

Good morning. Just a couple remaining questions. Can you just tell me what revolver availability and I guess the liquidity situation Celgar was at the end of the year, and today?

Yes, sure. The Celgar is up $40 million Canadian revolver, it's asset-backed. We've drawn CAN24 million of it at year-end. We had a little bit room based on the borrowing base, I think CAN25.3 million at year-end was probably the limit. I don't have the calculation as of today, but based on some of the inventory build I would guess it's going up a little bit. Maybe we've got CAN2 million of availability today. Not that we need it, but that's where that sits. In Germany, we've got EUR25 million under the Rosenthal revolver and that's completely undrawn and that's all available.

Great. And just to make sure, I think we may have talked about this a little bit in the past, and I do expect improving liquidity even Celgar, but if you needed to, if you needed additional liquidity there, are there restrictions on you taking liquidity or cash from, let's say Rosenthal somewhere else up to the parent and then to Celgar?

Well, from Rosenthal, the situation is the bank facility has what's called a covenant lock in it that we have to meet certain ratio thresholds to be able to distribute cash. So think of it like a leverage ratio, two and a half to one or an interest cover ratio, 1.75 to 1. But Rosenthal doesn't have any debt other than the revolver, so these kind of ratios are pretty easy to cover, so I think the quick answer is that at these levels of EBITDA, no problem moving money out of Rosenthal up to the parent.

Okay. And then just finally, the, I think you it was $60 in Europe and $50 in North America in term of price increases so far in the first quarter, how do those break out in terms of the timing of those price increases, January 1, February 1?

Yes in Europe it was 30 on January 1, and 30 on February 1, and then in North America and Asia it was 20 and 30.

And it sounds like you're expecting possibly another price increase on March 1?

Well, there's some rumblings of it, but with the currency movement, we'll have to see, but there has been talk of possibly another increase that maybe the producers will be announcing in March but because of the weakness of the Euro, etc., lets say the probability's less because we're getting it as a result of the currency movement.

Yes. Okay, thank you.

Your next question comes from Adam Zirkin with Harbinger Capital.

Gentlemen. How are you?

Good.

Good.

David, a couple just housekeeping questions for you.

Yes.

You gave us, you gave us the production for the three mills, do you have the sales as well in front of you?

Sure do, Adam, so for Rosenthal, $328,400.

This is, this is sorry for the, your giving me the year, the quarter will be fine.

Sorry. Pardon me you're right. CAN81,200.

Okay.

CAN151,500 for Stendal, and CAN119,100 for Celgar.

That's a fair amount of inventory build.

It's because of the shipment issues. Inventories still really low compared to normal levels that we like maintain Adam to be honest.

No I understand that. More of what Jimmy was trying to get at, is there some shipping issues that things tail over at the end of the quarter?

No, basically what happens is that Celgar, a lot of the shipments are by barge, so we have these accumulations and then of course, it's barged out, so when you're talking about 20,000, 30,000-ton type of shipments, you're going to get fluctuations month to month depending on barge schedule availability.

Like you said David, they're still very low.

Yes. For sure.

Do you know what the price realization was for the restricted group in either dollars or euros?

I just don't have the top off the top of my head and the K is going to come out really shortly so let's leave it there.

On the Canadian green energy program, David, how will you be accounting for those grants, do they hit the P&L at all or is it only on the balance sheet?

Only on the balance sheet. You see it as a reduction against fixed assets and then it will amortize to zero over time at the same rate the as depreciation of the asset. So the net effect is nothing at the end of the day.

Okay. And lastly, it seems that, while the pulp prices are, and maybe this is six of one and half dozen of another, but while the pulp prices have increased, the discounts between the realization and the market price haven't really closed at all, is there a reason for that? Is it silly to be concerned about it, perhaps you talk about that a bit?

Well the discount rates today, I think Europe and the US are probably pretty similar and they range in the 12% to 14% range.

Yes.

And in tight markets in the past we've seen them down in the 7%, 8% range and why they're not going down to that level is a bit of a mystery to us, it's not something any one company can move. I mean, we're always pushing on it, but you have to be in the market type of concept, so as the market, if it remains tight, which we believe it will, those discounts will over time improve to our favor, but why they haven't moved quicker, Adam, is a bit of a mystery.

Okay. Well thanks, guys and great quarter.

And your last question comes from Carson Dickson with T. Rowe Price.

Hey David, hi Jimmy.

Hi.

I was trying to go through the I know indenture on the 9.25% bonds, is there a springing lean in there? Is that, issued secured debt ahead of that at the restricted group, it would be a springing lien?

Well we have a basket is the way I think about it, that you've got some borrowing room, and then, that borrowing room actually grows if you have positive cumulative net income, and fix charge coverage ratio greater than 2 to 1, so I don't know if that answers your question. There is some borrowing room if we needed it. We're not anticipating using it at this point.

Yes, right now, thing are much better. I was thinking about also year when you were looking at these.

If you want to get into more detail we can do it offline.

Yes. I'll do that later. Thanks. Good quarter guys.

Thank you you.

And now like to turn it back over to management for closing remarks.

Okay. Well, of course, I wish to thank everyone again for taking the time. And you know, we are very optimistic in terms of the general conditions for the pulp industry. As you know at the end of last year as well as the beginning of last year, there was significant amount of capacity closures, took a little while for that impact really to be felt, but being a commodity where really you're not seeing new capacity coming on, we are optimistic for the future that the demand side continues to grow because of the global economic growth as well as population growth, and so all in all we think that it's just a question of time when the supply demand balance is of course, returned to more normal levels like we have seen again, and so we've weathered the very difficult conditions and we're definitely optimistic for this year and we're dealing with inventory levels which clearly are still very low, so if there are any adjustments coming because of economic down turns etc., we think the adjustments will be far faster than we experienced last year. So even if there's a weakness, it's not going to be the type of things we've seen in the past because traditionally we've had much higher levels of inventory at all areas, whether it's producers, end users, etc., and those are being brought down to levels which are at very historic lows, so if there is a correction, it will be mild, and we, being one of the low cost producers, certainly will be there to take advantage of any return in terms of the markets for the future. So on that note, again, thank you, and good bye.

This concludes today's conference call, you may now disconnect.