Mercer International Inc (MERC) 2014 Q4 法說會逐字稿

Good morning and welcome to Mercer International's fourth-quarter 2014 earnings conference call. On the call today is Jimmy Lee, President and Chief Executive Officer of Mercer International, and David Gandossi, Executive Vice President, Chief Financial Officer, and Secretary. I will now hand the call over to David Gandossi. Please go ahead.

Thank you, Sally, and good morning, everyone. As usual, we will begin with formal remarks, after which we'll take your questions.

Please note that in this morning's conference call, we will make forward-looking statements according to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. I'd like to call your attention to the risks related to these statements, which are more fully described in our press release and with the Company's filings with the Securities and Exchange Commission.

So I'm going to cover some of the key financial aspects of the quarter, and then I'll pass the call over to Jimmy.

The fourth quarter of 2014 was an important one for Mercer and in many ways transformational for the Company. During the quarter, we completed the process of restructuring our debt, which improves many of our balance-sheet metrics today and gives us greater financial flexibility going forward. I'll come back to the refinancing in a moment. But first, let me make a few comments on our quarter, which was operationally another very strong quarter for us.

In Q4, we achieved EBITDA of $71.3 million, compared to $67.6 million in Q3, an increase of $3.7 million. During the quarter, the quarterly average European price increased slightly to $935 per tonne, while the quarterly average price in China went down slightly to $715 per tonne.

However, relative to Q3, our Q4 results benefited from the impact of the stronger US dollar on our euro and Canadian dollar costs and lower major maintenance costs. Partially offsetting these positive impacts were slightly higher per-unit fiber costs at all three mills and lower pulp sales volumes.

Relative to Q3, our pulp production was down slightly this quarter, primarily due to maintenance at the Celgar mill. Our Q4 sales were down relative to Q3, due to Q3's record sales volumes and the usual end of year holiday-related logistics challenges.

We reported net income of $3.2 million in the quarter or $0.05 per basic share, compared to net income of $88.3 million or $1.38 per basic share in Q3. Our Q4 2014 income includes a loss on settlement of debt totaling $28.5 million or $0.44 per basic share associated with the recent refinancing of our 2017 senior notes and the Stendal loan facilities.

You may recall that our Q3 earnings were positively impacted by one-time non-cash gains totaling $63.1 million associated with gains on the acquisition of debt that was owing to Stendal's minority shareholder and the recognition of certain tax assets. In addition, our Q4 2014 net income includes a non-cash unrealized gain of approximately $2.3 million on the mark-to-market valuation of our fixed-interest rate swap.

The US GAAP IFRS differences relating to major maintenance had an impact this quarter when comparing our EBITDA as many of our competitors. In Q4, we expensed direct costs of approximately $1.5 million on major maintenance, the majority of which would've been eligible for capital treatment under IFRS.

With regard to our cash flow, our consolidated cash position was down significantly compared to Q3 as we used $189 million to reduce our debt in Q4. Our consolidated cash balance is currently sitting at approximately $63.5 million. Quarterly working capital movements decreased cash by about $24.8 million on a net basis, primarily due to a decrease in Accounts Payable.

Capital expenditures, including intangible asset expenditures, drew approximately $13.7 million during the quarter. Of this total, the majority was spent on higher return capital projects at Rosenthal and Stendal and $1.2 million was spent on the development of our new enterprise-wide software system.

Our working capital in the 12-month period ended December 31, excluding cash and short-term debt, increased by approximately $7 million to $211 million. The increase was primarily due to lower payables.

In terms of our liquidity, at December 31 we had approximately EUR28.5 million of undrawn revolvers available at Rosenthal, approximately CAD38.3 million available at Celgar, and Stendal's new revolver had approximately EUR54 million available.

Our $63.5 million of cash at the end of Q4 includes approximately $10.3 million of restricted cash. These are funds that have been set aside to act as collateral for Stendal's interest-rate swap. The collateral amount is contractually based, and as the interest-rate swap balances decline, so will the collateral amount, subject to certain minimal collateral requirements.

Net debt to equity at December 31 was up compared to Q3 at approximately 1.4 times equity. The increase in this ratio was primarily due to a lower equity balance resulting from the impact of the strengthening US dollar on the translation of our foreign currency denominated assets and liabilities, which flows through the accumulated other comprehensive income line of our equity statement.

I would also like to provide a quick update on our project to implement a new enterprise resource planning system. This project is going as planned and is on target to be completed in stages over the next two years.

Now as previously mentioned, we successfully completed the refinancing of our debt this quarter. Specifically, we repaid our 2017 senior notes and Stendal's two debt facilities with $650 million of new senior notes, draws on our working capital revolving debt facilities, and cash on hand.

The effect of all this is to significantly reduce our debt and increase our total equity. We have significantly increased our financial and operational flexibility and simplified our structure by eliminating restricted covenants within the [yool] Stendal bank credit facilities, extended the maturity of our long-term debt, enhanced our revolving credit facilities, and eliminated the complicated restricted group structure.

Our interest expense will go down and our free cash flow generation will be enhanced, all in all a very positive way to close out the year.

That ends my overview of the financial results, so I'll turn the call over to Jimmy.

Thanks, David. Good morning, everyone.

I would like to start by saying we are excited about the transformation of our balance sheet over the last two quarters, cumulating with the successful completion of the refinancing of our debt. We're also pleased with our fourth-quarter operating results. As David noted, compared to Q3, our EBITDA was up approximately $3.7 million.

Our mills ran well in Q4 and that has the effect of lowering operating costs in general, but we also benefited from a stronger US dollar, which had the effect of lowering our euro and Canadian denominated costs. Partially offsetting these positive impacts were higher per-unit fiber costs in both Germany and Canada.

December NBSK producer inventories were at 31 days, up four days from November. We're not surprised to see this increase in producer inventories in December since producers inevitably face shipping challenges due to the holiday season. However, even at these inventory levels, the NBSK market is considered to be in balance.

In addition, December hardwood producers' inventories are down 2 days from November at 36 days and we have seen the softwood/hardwood gap beginning to narrow.

NBSK list prices in February are $1,000 in North America, $900 in Europe, and $670 in China.

Looking forward, we expect new tissue machines in China and paper producer inventories at normal to low levels to create steady demand for NBSK. We believe that the European and North American markets are in balance and expect them to stay in balance through the first quarter of 2015.

However, we are seeing some downward pricing pressure, primarily driven by currency fluctuations as a strengthening US dollar creates price increases for our customers. Currently, we expect to see some small downward price adjustments in all markets in the first quarter. The market remains tight, and this, combined with the customers' inventory levels, is expected to keep prices reasonably steady.

As I have noted in the past, we remain optimistic about the future supply/demand fundamentals for NBSK pulp. We see demand growing in developing economies, particularly China, in a variety of grades, including tissues, specialty, and board. Specifically, there are approximately 2.8 million tonnes of incremental tissue capacity coming online globally in 2015, with approximately 1.2 million tonnes coming online in China.

A common theme in pulp and paper analyst commentary is the new hardwood capacity that has and will continue to come onstream. Despite this, the NBSK market has remained tight and our view is that the risk of incremental hardwood capacity negatively affecting NBSK prices is less and less of an issue. In fact, we believe 2015's steady global NBSK prices vindicates our contention that a paper maker's ability to substitute hardwood for softwood is limited, due to the fact that modern paper machines require certain strength characteristics from their raw materials in order for the machines to run at the high speeds that they are designed for.

Today, we are seeing the softwood/hardwood price gap as low as $40 on a net base in China. At that level of price differential, it is possible we will see paper producers using additional softwood in their recipes to get the benefit of higher productivity.

Turning to our pulp production for a moment, Q4 was a strong production quarter for us all. All of our mills had solid production, including Stendal, which had a two-day maintenance shut in the quarter. As well, our mills set an annual production record. We produced a total of 1.485 million tonnes in 2015, which exceeded our previous production record by almost 17,000 tonnes. The majority of this increase was the result of the Stendal's Blue Mill project.

In total, we produced approximately 374,000 tonnes of pulp this quarter, compared to approximately 376,000 tonnes in the third quarter and approximately 365,000 tonnes in the fourth quarter of 2013. Our pulp sales volumes were down in Q4 and totaled approximately 361,000 tonnes, compared to 387,000 tonnes in the third quarter and 359,000 tonnes in Q4 2013.

Our fourth-quarter sales were down due to the lower sales at Stendal, as year-end holiday-related logistics issues slowed sales in late December.

Our Q4 sales by region were Europe, 227,000 tonnes; China, 87,000 tonnes; and all other regions combined were 47,000 tonnes. In addition, the mills sold approximately 202 gigawatt hours of electricity in the quarter, compared to 207 in Q3 and 172 gigawatt hours in Q4 2013.

Relative to the third quarter, our per-unit German fiber costs were up slightly in Q4. Lower demand for lumber resulted in lower sawmill operating rates, which in turn reduced the supply of residual chips, creating upward price pressures. Compounding this impact, certain areas of Germany have experienced unusually high levels of rainfall, and the wet ground that results had limited harvesting.

On the positive side, demand on German saw and pulp logs from pellet producers and board manufacturers remained low.

Looking forward, we anticipate that our German per-unit fiber costs will increase marginally in Q1 2015, but we expect that the weakening euro relative to the US dollar will offset the cost increases in our US dollar reports. We continue to monitor this market closely and are very focused on opportunities to reduce our German fiber costs going forward.

In British Columbia, our Q4 per-unit fiber costs were also up slightly this quarter relative to Q3. We anticipate that Celgar's per-unit fiber costs will also increase modestly in Q1 2015, due to the increased demand from coastal mills. However, similar to German fiber costs, we're anticipating that the weakening Canadian dollar will offset the rising per-unit costs.

We are currently satisfied with each mill's fiber inventories and expect that we will be able to continue to source the fibers that we need.

We regularly get questions about the timing of our annual major maintenance shuts, so I will highlight that our 2015 major maintenance shuts are as follows. In Q1, Celgar will have a 10-day shut. In Q2, Stendal has a 10-day shut. In Q3, Stendal has a 14-day shut --

That's Rosenthal.

Rosenthal has a 14-day shut. And then, Q4, Stendal will have a two-day short shut.

With respect to our NAFTA claim, we continue to expect our case to be heard in mid-2015, with a decision either in late 2015 or early 2016.

In closing, we are excited with our new financial structure and our ability to create shareholder value from the financial flexibility we've now created. Operationally, we'll build on our 2014 production sales successes. Regarding the NBSK market, we expect some currency-related price impacts across all markets early in the first quarter, but we believe the overall market tightness and incremental tissue supply will continue to drive strong pricing.

We remain confident that the new hardwood capacity will not have a significant negative impact on NBSK pricing and we continue to be optimistic about the medium- to long-term NBSK supply/demand fundamentals, which we foresee as being driven by increasing economic standards globally.

That is the conclusion of my prepared remarks and I will now turn the call back to the operator so we can open the call for questions. Thank you.

(Operator Instructions). Sean Steuart, TD Securities.

A couple of questions. You've got what looks to be a pretty compelling free cash flow window opening up here over the next couple of years. It was pretty good this year as well, or 2014. Can you speak to strategic priorities for capital allocation beyond discretionary CapEx plans that you have in place over the next couple of years?

Hi, Sean, good question. We've been expecting it. Free cash flow looks like it will be impressive.

As you know, when we issued our bonds, we put a little bit of pre-payable debt out there for ourselves, so we've got about $21 million on our revolvers to pay back. We've got the PIK note outstanding of EUR10 million. We've got the five-year bond series. So there's an opportunity down the road to pick away at those.

Generally, we see continuing with our high-return modest capital investments. As you know, our mills are very modern. They don't have large capital needs. We don't have any large projects in our gun sights at the moment.

We have an expectation to be rewarding shareholders. We expect to continue to build liquidity on our balance sheet, either in the form of cash or if we can opportunistically pick off our debt, we will. So we see ourselves just getting stronger and having more optionality, if you like, as we go forward. The world is not always going in a perfect direction. So really, just sort of a balanced approach to capital allocation going forward.

Would M&A be on the radar at all?

Well, we're not shy to do whatever we can to create value for shareholders and we're always looking for opportunities to grow and enhance our value proposition, but at the moment there's nothing in process.

Okay, and then second question. Jimmy, I appreciate the context you gave on NBSK markets. I just want to make sure I'm reading your outlook the right way. You know, we've seen prices drop through the first couple of months of the year. Is your impression that if exchange rates stay where they are right now, there is limited further downside in NBSK pricing from current levels?

Yes, I think the impact in terms of what happened late part of 2014 was really more driven by the speed of the decline of the euro. The euro was dropping so fast that the price adjustments to our customers were quite extreme. They were kind of waking up to monthly price increases in euro terms which were quite significant.

And, of course, all of them were putting pressure on for some form of relief because their expectation as a result of the even significant decline at the start of 2015 was such that they recognized that the increases were going to be significant moving forward, based on the formula, as well as spot market type of pricing.

And therefore, the adjustment we announced early on was really to reflect, I think, the over-rapidness of the price increase in euro terms and to give our customers breathing space so that they can make the adjustments which are necessary on their part to compensate for really the significant cost pressures that they have experienced in the later part of 2014 and going into 2015.

So, don't regard the price decline that we announced and also our peer group have also taken as indicating really a weak kind of NBSK market. It's really more reflecting the reality that the price increases were substantial for many of our customers and probably too quick in terms of the nature, and really now giving some breathing space to our customers to make and correct their own kind of pricing, as well as costs, so that they can at least make some adjustments.

So I think that is really where our view is. We think that the prices -- as long as currency movements are reasonably stable, prices will stay fairly good. I think if there's further weakening of the euro at a very rapid pace, then of course we have to address that kind of cost pressure again. Hopefully, that kind of addresses my views.

That's good detail. Thanks very much, guys.

Mark Kennedy, CIBC.

David, first of all, could I just get the CapEx guidance again for 2015?

CapEx for this year we are targeting, round numbers, around $45 million of capital. And that's -- the heaviest one is Stendal, about $20 million of that. Rosenthal's about $15 million and Celgar is about $9 million.

Both Stendal and Rosenthal have these wastewater fee offset programs that we've talked about the past. So good chunk of both of those programs is spending money to upgrade aspects of the mill that qualify for wastewater fee offsets. So it's in a form -- it's kind of like a grant. So we accrue the costs on an ongoing basis and in a three-year program, if we have a qualifying project, we can have those fees forgiven, and so, effectively, government grant money to help us enhance the mills.

All right, thank you. And Jimmy, just a question on what you see in terms of new NBSK capacity. Like we know there's one big new mill coming in Finland, but there's now talk of a second mill in Finland. And then, also, there's talk of maybe one or two new mills in Russia, but with Russia you never know what's real and what's not. So just curious on your thoughts there.

Clearly, it looks like towards the end of this year, we'll probably have the restart of the [Pihls] recovery boiler, so there will be some further incremental pulp coming later part of this year. But our expectation is that the incremental increase, of course, in the tissue capacity, as well as other specialty grades, will more than adequately compensate for that further supply.

In regards to the Ilim situation, of course they will further improve their productivity as we go through the year. So I'm sure we will get further incremental tonnage coming out of Ilim through the year, but, again, not significant, so essentially being well taken care of by the, you know, continued growth in demand coming from capacity increases for tissue, as I said.

In terms of the big Finnish mills, which really are looking more in terms of 2016 on, of course there is the Sodra capacity increase, again, a reasonable size, and then you've got the big unknown one, which really we still within the industry don't have a really clear guideline as to how much hardwood/softwood specialty developing, etc., etc. So that one is still a big question mark.

In regards to the speculative project again in Finland, it is not really financed. It's still on essentially just the drawing board. We question the availability of adequate wood supply to have two of these large type of projects being looked at in a very short period of time, to be realistic. So that's a big question mark.

Russian capacity, of course, it's always out there, but the financing issue for any Russian project, to be realistic, is going to be very difficult, at best.

Okay, no, that's great. Thanks for your thoughts.

Andrew Kuske, Credit Suisse.

You gave some really good color and commentary and just expectations around fiber costs. But if we could just walk through a little bit of the other points in your cost structure and just expectations, and maybe in particular just on chemicals cost. Do you see any major deviation happening in chemicals costs this year?

Nothing of any material nature. Of course, there is certain chemicals because of, let's say, capacity closures or adjustments that were having certain pricing pressures.

But these commodities or our cost -- chemicals, essentially, are available globally. So it's not that we're not going to get it; it's just a question of some incremental increase. Of course, other chemicals, we are seeing decreases. So all in all, we are not expecting any real material kind of change, net wise.

Okay, that's helpful. And then, just on the FX. I guess maybe if you could run with the assumption that euro/USD goes down to effectively parity, how concerned are you about that? Or is it really if we drop to that overnight, that's much more of a concern from a pricing realization standpoint versus, maybe, a gradual decline over 12 months?

Yes, a gradual decline will allow our customers to make the necessary adjustments, as well as how and where they ship their end products to, as well as their own cost inputs and pricing. So a slow gradual decline certainly will not have a big impact.

A rapid decline like we've seen in the last few months of the euro/US dollar rates, as well as the Canadian rates, will put significant pressure on because, of course, they don't have sufficient time and there will be a lot of pressure put on us by the customers to at least help in terms of this adjustment. And likely, then, you'd see US dollar prices again being moderated to compensate for that very rapid kind of weakness in the euro.

Okay, that's helpful. And then just, if I may, one final unrelated question, just about the conversations you're having with your customers really by region, the way we look at North America, Asia, and then also Europe. I guess, what areas look to be the most resilient and really seeking more supply and at really tight pricing?

We are seeing, oddly enough, the Middle East and those areas a fairly strong demand because, of course, continued growth in kind of hygiene grades in that market.

China continues to grow in terms of the imports. Of course, there's certain sectors of the paper grade are experiencing significant overcapacity and therefore, of course, they are not in a good position. But other grades, especially the specialty grades, are experiencing good growth. Tissue markets are still okay.

So our expectation certainly in China is continued demand growth, more gradual than we've had in the past, because I think their ambition in regards to the tissue capacity has moderated somewhat and is probably more realistic. So there has been kind of delays in the installation. But overall, the total number of paper machines going in hasn't changed, but really the scheduling has changed.

The European market, certainly the German market is still fairly strong. Eastern Europe is fairly strong. Generally, it's a mix of the paper. As the coated publishing type of grade is clearly under pressure, generally the hygiene grades are fine, specialty grades are fine. It's not that the market itself as a whole is bad; it's just that certain segments of the paper market are experiencing, of course, pressures because of the capacity issues and demand drop-offs.

That's very helpful. Thank you.

Paul Quinn, RBC Capital Markets.

Great results in the quarter. I just wanted to ask a couple of easy questions. One is you describe the European pulp shipments as about 63% of your total in 2014. And in your pricing discussion, you alluded to just the rapid fall in the euro and the cost increase for your customers and giving them time to adjust.

What is your assessment of their ability to make the necessary adjustments, which really, I guess, translates down to raising paper prices or tissue prices and seeing some cost reductions?

Well, you know, I think each of these grades have different kind of profit margins. So I think clearly the hygiene grades are better positioned to compensate and take, I guess, the higher raw material inputs and essentially reduce their margins, at least in the short term.

I think the other grades probably are looking more to try to promote more exports because, of course, if you can export in US dollars and your cost is in euro, then, of course, that can compensate a lot for the increase in the raw material cost.

So I think there's going to be a push certainly in terms of the publishing grades probably to export into US dollar markets as much as possible. I think the hygiene grades, I think there'll be probably some adjustments of their price moving forward, but probably initially it will be more of a margin squeeze.

Going to set up for an interesting dynamic. Okay, and then in other markets, it seems like that is about 13% and you highlighted Middle East as an area of growth. Is that in the other bucket and what percent does North America make up, as well?

For us, we really don't ship a lot into the US market. It's primarily the China and also out of our German operations and some into the Middle East. As yet, our Middle East market and India market is fairly small, but what we are seeing is certainly the demand side looks very healthy.

It's continuing to grow. It's a US dollar price market and therefore it is attractive for us. And the shipping rates certainly have come down for many of these countries and I think that's really the issue here. The difficulty of accessing the Indian and Middle East market is really more limited because of logistics issue, rather than strictly just the pricing. The pricing is okay, but after you try to figure out how to get it there, then it doesn't make a lot of sense.

But we're seeing these logistics costs moderating and there's other ways to get it there. And so, we will focus on the Middle East and India market moving forward as certainly one in the long term that could be very good for us.

Okay, and then you talked about fiber and chemical costs. I'm just wondering what you're seeing on the transportation side with lower oil prices, whether it's coming back in some savings. And then, whether -- just because of the drop in energy, whether you foresee any sort of change in electricity prices on the stuff that you are selling?

Well, I mean, in terms of the electricity price, because it is a legislative fixed price, there's really no adjustment whether electricity rates on a market base is going down.

Of course, translated into US dollars, because we receive it at both euro and Canadian dollars, if the euro continues to drop, then of course in US dollar terms you'll see some drop in overall income coming. But in terms of euro price, Canadian price, there is no impact at all.

In terms of certain shipping, we are, of course, getting some of the fuel surcharges eliminated, so we are getting the benefit of essentially the reduction in oil prices, reasonable amounts, but nothing of really material nature, but it helps.

In terms of the Canadian situation, of course, as you know, it's really the railcar availability and the port issues that have always been a concern during the winter period. It continues to be a concern and we are taking steps to essentially further reduce the impact of [CP] or the port type of closure situations. And therefore, we think we are very well positioned this year moving forward to really deal with any bottlenecks as a result of CT strike or port issues. I think because of our location, we'll be far less impacted than many of our competitors in Canada, for sure.

In terms of the European side, no, we've not really seen container rates really drop because oil prices have dropped. We haven't seen really, certainly in the Baltic area, shipping rates drop for our log. But that's probably because it was the winter and typically costs, because of ice and all these other things, tend to be higher. We'll have to see as we move through the rest of the year how the fuel price impacts in terms of those type of costs on the Baltic, as well as long-term container rates. But a little bit early on right now to get really any real kind of benefits, other than, of course, elimination of the fuel surcharges.

Okay, and then just lastly, it looks like pulp inventories came up, I don't know, somewhere around 13,000 tonnes in the quarter. How do you -- do you like your overall inventory levels? Where is the extra pulp sitting right now? And is that any kind of -- back to your CP railcar, is that any concern at all?

Yes, you know, our inventory build was expected. It's typically very difficult to ship during the Christmas/New Year period, as well as Chinese New Year coming in February. We knew that basically you're going to get reduction.

In fact, because of the maintenance that we are going to be doing in the first and second quarters, the inventory build was actually needed anyway. In fact, at some point in the later part of last year, we actually had practically no inventory. So, in fact, the inventory build to a degree has probably eased some of our concerns. Because of the rapidness of the euro drop, certain customers in Europe were ordering more because they realized that next month's prices could increase.

And therefore, I think it was kind of front-loaded in certain areas, and that's why Q3 volumes, as you can see, was quite significant. So you're comparing Q3, which was record sales, against Q4, which was still very good, but of course less than Q3. But some of the euro currency issues came into play, shipping issues came into play, and, of course, the holidays both in Europe, as well as the Chinese New Year, plays into this in the early part of the year.

So don't read anything in terms of the inventory build at the end of the year as anything other than more seasonal and holiday-related issues.

Great. 2015 looks great. Best of luck.

Thank you.

George Berman, JP Turner & Company.

Congratulations on a great quarter. I sure will not miss the restricted group in the future. Doing the whole balance sheet in US dollars, it really makes it a lot easier to get your hands around the Company.

A quick question for me. With the recent refinancing, what will your annual interest cost savings be in US dollar terms going forward?

Well, it's a few moving parts in there, George. One of the things that changes now that we've taken the Stendal debt out is the swap component moves out of the interest lines. It moves down into the mark-to-market line. But it is a cost and it's kind of like interest.

So we did have lower-cost Stendal debt that we replaced with the 7% senior notes, but we also had -- we took out the nine series. So net net, our interest expense is going to be down in the $50 million range, compared to the $60 million range last year.

And the extensive cash flow you'll be generating this year, if things continue on the current path and we don't see any further concessions on price from your side, would you be pushed to consider buying back debt at a premium or rather buying back shares here or possibly announcing a dividend?

I don't think we'd be buying back debt at a premium, George. We'd be rather keeping liquidity to keep our options open.

The Company view is we wouldn't be buying back shares at this stage. We think our float is important for a number of our investors. So buying back shares is not all that helpful in that regard.

And I think generally our view is that a reasonable dividend, something that can grow over time, balanced with improving liquidity and keeping options open, is probably the way we would lean.

Great. Good luck for the future.

Thank you.

Andrew Shapiro, Lawndale Capital Management.

Thank you. Actually, a few follow-ups from what was asked by a few of the prior questioners and also your script. You mentioned in your script this time you expected a decision in the NAFTA now by the end of 2015 and inserted early 2016. You previously were scheduled to testify in July. Has that date been moved back, which has led to your adding early 2016 now in the expectation of a decision?

No, it hasn't, Andy. But we -- in pushing our NAFTA legal team, we've become more aware that it may take the tribunal a few months longer than we had originally expected. But we don't really have any firm view or knowledge or nothing has really changed. It's just better to be safe, so we've just -- it might be 2016, we don't know.

But the trial and making -- and the testifying is still on for July?

All on schedule, yes.

Okay. Following up as well on the recent question here and with the cash flow you're generating, your expectations of, we'll call it, price stability, the CapEx needs you've also cited are probably not as substantial as they had been in the past. And your types of loans that you could repay without premium, also limited.

At what point of reduced leverage does your other capital allocations, which you've now said are more likely to be dividends than buybacks, kick in? Is there an optimal leverage ratio or range that you and the credit rating agencies and your lenders have kind of identified so that one might figure out dividends around the table for a Board discussion X quarters from now?

Andy, we've tried to be as clear as we can, and in the absence of Board decisions, there's not really that much more we can say. And obviously, our free cash flow and cash retention situation is going to drive that discussion going forward and it will evolve. But I don't think I can be much clearer in terms of what our current intentions are.

No optimal range of leverage that you guys have in mind?

No, I don't think it's driven -- Andy, I don't think it's driven really by an optimum kind of level of debt or leverage. I think it's more driven in terms of -- I think in the short term, it's rebuilding some of the cash and repaying some of the short-term draws that we've done. That is going to occur.

Our view is the first quarter certainly looks very strong. Our view is that will continue through the year. So we'll see in the next two quarters the situation. If it is continuing to be as what we expect, then I think certainly the cash position and the rebuild of our balance sheet is such that certainly the Board will be looking at then probably the allocation issue of the extra cash.

So it sounds like your observation on this is similar to mine, that it could be a few quarters, because one quarter pretty much takes care of your CapEx needs. Another quarter rebuilds your cash, and you're -- assuming you're on the same run rate. You're there within -- in this (multiple speakers)

All I can say, Andy, I guess, you know, based on forecasts and our particular views of the market, that clearly in terms of our cash position and our decision on capital allocation, we'll be looking at that probably in the nearer future, rather than looking at it several years down the road. So clearly it's an issue that we will be focused on as we go through this year.

And certainly, I think the Board is considering, as David said, probably leaning more towards a dividend policy, a regular one, rather than any other form of allocation. Of course, it's subject to the debt markets, as such. If there's opportunistic type of pricing situations, then certainly we would be looking at that as being clearly an option.

No, I'm not trying to tie your hands down. I just wanted to make sure we're on the same page, that assuming what you guys expect and what's out there, it's something that's on the agenda within the current fiscal year that the Board will get to and would be discussing it.

As I said, as things look very good, the probability is high that it will be something that will be on the table this year, but it's all subject to really what happens.

On the currency side, is it still the case that $0.01 move in the euro to dollar moves costs by about $5 million (technical difficulty) loonies around $3 million?

So those numbers you've just quoted come out of our prior year's 10-K, Andy, and we are just about to squeeze our current K into the market. I think you'll find because of the levels, the euro number will be slightly smaller, but not materially.

Okay. You didn't give sales and production numbers by plant, or I must've missed it. Are you not doing that after the restricted group's barriers are gone or is it --

Yes, we've been resisting, honestly. Don't want to get ourselves into segment reporting, so we try not to put those out there.

Okay, that's fine by me. Someone else might rely on them more. What are you -- what's on the agenda for not-deal road shows and your conference plans for the coming few quarters?

Yes, so we've been invited to most of the bank -- typical bank conferences, so we'll be getting out all of those; so Jefferies, Barclays, I just did CIBC, Macquarie's. We are going to do some marketing probably with RBC and possibly with Raymond James, non-deal type stuff in the spring. So we're intending to be quite active.

All right, come see us if you come out to the San Francisco area.

Will do, looking forward to it.

DeForest Hinman, Walthausen & Company.

Thanks, just a couple of questions. You mentioned some of the port issues with the seasonal aspects. Any instances of work slowdown or sympathy strike at the Celgar exposed ports?

There is labor challenges in BC right now with CP engineers. They filed a lockout notice -- or strike notice and I believe the federal Canadian government is preparing back-to-work legislation. So there might be some disruption on the CP line for a period of time. There wouldn't be any sympathy striking by our employees over that. It would be too remote an issue for them.

The port congestion issues continues, but, as Jimmy mentioned, we move a lot of product outside of that particular hub to avoid getting caught up in that.

So I think there's some risk of some congestion for the forest products industry generally, but I think we've got pretty good optionality as a Company to work our way through it.

Okay, thanks, and then the second question was on the strategy with your interest-rate swap. In my head, I thought maybe you would X that out, but then we've seen all this weakness in the euro and I think that liability position was lessening. Is the intent to maintain that swap or would you guys look to exit that?

DeForest, you're absolutely right. We could have just retired it, but you know with the strength in the US dollar, interest rates being at record lows, we're betting that we're going -- we'll be better off by holding it for now. And that has been the case. There's been quite a move on currency alone.

At some point in time, it's not a big thing anymore. If it looks like we've got everything out of it we're going to get, we could close it out. But for now, it's more likely than not that the mark to market will improve in our favor in the near term.

Okay, great. Thank you.

Matt Sherwood, Cooper Creek Partners.

Congrats on a great quarter. Just a quick question on the dividend possibilities you talked about. Can you just walk through the restricted payments basket and just how that affects the level of dividend you could pay?

Yes, that's a good question. We've got a restricted payment basket (multiple speakers) starts as $100 million, and then there's formula room that gets created based on these typical net income tests, 50% of net income. So the basket will grow over time if you have positive net income, and if you have losses, it obviously diminishes. So the formula goes up and down. The $100 million is a one-time basket.

Got you. So I mean just with the $100 million, you have the ability to pay out $1.50 if you wanted to tomorrow, a share. And then from there, if you earn $2.00, next year you could pay out $1.00 of that, theoretically. You probably won't, but that's a fair assessment?

Theoretically.

Great. I guess just final question on the -- just the competitive position of your customers with the decline in the euro. You know you touched on it a little bit. But I guess is the decline in the euro, if it continues to decline the way it has been, necessarily a bad thing for your customers? How do you look at it?

Well, you know, there's very many factors which go into it. Certainly, the decline in the euro means imports will be restricted if it's coming out of a US type of area. Clearly, that's one issue.

It strengthens their ability to export into US priced areas generally, and therefore, of course, they will be looking at an export type of program. In terms of the hygiene grades, if it's made in the US, it's not likely to be shipped in Europe. So essentially, it's a local type of market and therefore, of course, they will be under pressure because they cannot just jack up their final pricing that rapidly. But at the same time, their cost inputs have to be adjusted and, at the same time, they are going to look at their margins.

If you look at the hygiene area, certainly they've had much better margins than many of the other paper grades and therefore, clearly, they're in a much better position to absorb it in the short term, some of these cost pressures.

So they are all different. At the end of the day, it's really more is consumers going to continue to buy, and certainly in many of the grades, they will continue to buy. We all know about the publishing grades. Clearly, depending on which grade, they are all suffering at different rates. But that is more of a structural issue, rather than any other issue.

Right, since pulp is an input that they all have, all of your customers, you'd think they would over time be able to pass it through to their end customers in local currency, in light of the fact that --

Yes, it is a global commodity. It's priced in US dollars. All of the producers have the same cost pressures. So at the end of the day, it's not that it benefits one customer over another. Each of them have the same cost pressures and therefore all of them will be looking to make the adjustments. So that's a fact of reality and therefore prices will have to move to reflect the increase to all of them.

Great. Thank you so much.

(Operator Instructions). Dan Jacome, Sidoti & Company.

Just circling back to the discretionary sort of capital projects for one second. Do you have any -- I guess the Rosenthal, its tall oil project, I'm assuming that's complete. Just wondering if you had any updated thoughts there, and then if your thinking has changed at all on sort of the incremental revenue you were expecting out of that going forward. Thank you.

You're right. The Rosenthal tall oil project is completed. It was completed on time, on budget. It functions the way it's supposed to. There's no technical issues involved and the price of the product we make is no change. So it's as expected.

Are you still expecting, I think it was, an incremental couple million dollars year one or has that changed at all?

No, that's correct.

Okay, that's it. Thank you very much.

You're welcome.

There are no further questions at this time. Mr. Lee, I'll turn the call back over to you.

Okay, thank you. I thank everyone for coming to today's conference call, and it was a very good year and certainly this whole transformation of the balance sheet means we start this year with a completely new Company in many ways.

And we are very much looking forward to what we can achieve and certainly we are looking at very good markets, at least from what we can see today. And therefore, our expectation is certainly for 2015 to be again another very positive year. Thank you very much. Bye.

Thanks, everyone.

This concludes today's conference call. You may now disconnect.