Mercer International Inc (MERC) 2015 Q1 法說會逐字稿

Good morning and welcome to Mercer International's First Quarter 2015 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.

Thank you, Chris. As usual, we will begin with formal remarks, after which we will 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 the Company's filings with the Securities and Exchange Commission.

I'll now cover some of the key aspects of the quarter and then I'll pass the call over to Jimmy. Our first quarter results were a continuation of the strong operating results we had in 2014. Our mills ran well and pulp demand was steady in Europe but off slightly in China due to the Chinese New Year holiday. In Q1 we achieved EBITDA of $61.3 million, compared to $71.3 million in Q4.

The main drivers of our results in Q1 were the significant strengthening of the US dollar in the quarter, which had the effect of reducing our Euro and Canadian dollar cost in US dollar terms. The stronger US dollar also put pressure on NBSK pricing as the quarterly average sales pricing in Europe fell to $887 per ton while the quarterly average price in China went down to $663 per ton. As well, our Q1 EBITDA was negatively impacted by approximately $18.3 million as Celgar successfully completed their annual maintenance shut in the quarter.

After considering Celgar's annual maintenance shut, relative to Q4, our pulp production was up slightly this quarter as were our chemical sales, which benefited from Rosenthal's new tall oil plant, which was commissioned in 2014. We reported net income of $13.6 million for the quarter or $0.21 per basic share compared to net income of $3.2 million or $0.05 per basic share in Q4. Our Q1 2015 income includes a non-cash foreign exchange loss on intercompany debt of approximately $6.6 million or $0.10 per share.

Our current taxes totaled approximately $3.4 million this quarter, which is a testament to our growing profitability. We continue to have significant tax assets, but certain tax jurisdictions limit their use thereby creating a minimum tax expense. In addition, our Q1 2015 net income includes a non-cash unrealized loss of $0.5 million on a mark-to-market valuation of our fixed interest rate swap. The US GAAP IFRS differences relating to annual maintenance had an impact this quarter when comparing our EBITDA to those of many of our competitors.

In Q1 we expensed direct cost of approximately $11.4 million on annual maintenance, the majority of which would have been eligible for capital treatment under IFRS. With regards to our cash flow, our consolidated cash position was up significantly in Q1 compared to Q4 as we increased cash by almost $46.7 million. Our consolidated cash balance is currently sitting at approximately $109 million. Quarterly working capital movements increased cash by approximately $14.5 million on a net basis, primarily due to an increase in accounts payable.

Capital expenditures including intangible asset expenditures grew approximately $7.9 million during the quarter. Of this total, roughly half was spent on high return capital projects at Stendal, $0.9 million was spent on the development of our new enterprise-wide software system with the remainder spent on high return projects at both Rosenthal and Celgar. Our working capital in the 12-month period ended March 31, excluding cash and short-term debt decreased by approximately $27 million to $173 million. The decrease is primarily due to lower receivables and inventory balances, the reduction of which were heavily influenced by the stronger US dollar compared to the same period a year ago.

In terms of our liquidity, at March 31, we had approximately EUR28.5 million of undrawn revolvers available at Rosenthal, approximately CAD34.3 million available at Celgar and Stendal's new revolver had approximately EUR56 million available. In total we had approximately $117.8 million of revolver availability at the end of Q1. Our $109 million of cash at the end of Q1 includes approximately $9.1 million of restricted cash. These are funds that we have set aside to act as collateral for Stendal's interest rate swap. The collateral amount is contractually based and as the interest rate swap balance declines so will the collateral amount subject to certain minimum collateral requirements.

Net debt to equity at March 31 is up compared to Q4 at approximately 1.7 times equity. The increase in this ratio was primarily due to a lower equity balance resulting from the impact of the strength in the US dollar on the translation of our poor currency denominated net assets, which flows through the other accumulated comprehensive income line on our equity statement. Our project to implement a new enterprise resource planning or ERP solution is going as planned and remains on target to be completed in 2016.

Overall this quarter's results were heavily influenced by the strengthening US dollar. Our consolidated EBITDA benefited materially from currency movements while our balance sheet is somewhat smaller in US dollar terms relative to the end of 2014. In addition, we had a large non-cash unrealized foreign exchange loss on our intercompany debt this quarter. This foreign exchange loss was driven by accounting rules to require management to determine the long and short term nature of these relationships.

As a result of restructuring our debt in 2014, we now have much more financial flexibility than we had in the past and as a result we are classifying more of these intercompany balances as short term, which results in more foreign exchange gains and losses being recorded in our income statement, the magnitude of which are dependent on currency movements.

So that ends my overview of the financial results and I'll now turn the call over to Jimmy.

Thanks, David. Good morning, everyone. I would like to start by saying we are pleased with our first quarter operating results. As David noted, compared to Q4 2014 our EBITDA was down approximately $10 million. However, our Q1 results include over $11 million of direct annual maintenance costs compared to less than $2 million of direct annual maintenance costs in Q4. Our mills ran well in Q1 and that resulted in lower operating cost in general, but we also benefited from a significantly stronger US dollar, which had the effect of lowering our Euro and Canadian denominated costs.

Partially offsetting these positive impacts were slightly higher source currency per unit fiber costs in both Germany and Canada. Pricing was also down slightly in Q1 and I will speak more about that in a moment. March NBSK produced inventories were at 33 days, up two days from December. We're not surprised to see this increase in producer inventories in Q1 as the Chinese New Year holiday tends to push producer inventories up. However, even at these inventory levels, the NBSK market is considered to be essentially in balance.

In addition, March hardwood producer inventories are up two days from December at 38 days and we have seen the softwood hardwood price gap continue to narrow. NBSK list prices in April are $980 per ton in North America, $860 in Europe and $650 in China. We're beginning to see some upward pricing pressure in China. So we believe that all of the incremental Russian pulp has now been absorbed by the market and that the Chinese market pricing has hit the floor. While in Europe the strong US dollar is pushing downward pressure on prices, but so far the price reductions have been more than offset by currency movements.

Looking forward, we expect new tissue machines to continue to start up especially in China, which will insure a steady demand for NBSK. The strong US dollar does create a pricing headwind as it creates price increases for our customers even without a list price increase. But we expect the supply-demand fundamentals to slowly push prices up in China in the near term and that European pricing will remain steady through Q2. 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 tissue, specialty and board. Specifically, there are approximately 2.8 million tons of incremental tissue capacity coming online globally in 2015 with approximately 1.2 million of these tons coming online in China. Today the softwood hardwood price gap is as low as $20 on a net basis in China. At that level price differential it is possible that we will see incremental NBSK demand as paper producers begin using additional softwood in their recipes to get the benefit of higher productivity.

Turning to our pulp production for a moment, Q1 was a strong production quarter for us. All of our mills had solid production including Celgar, which had a 14-day annual maintenance shut in the quarter. In total, we produced approximately 363,000 tons of pulp this quarter, compared to approximately 374,000 tons in the fourth quarter and approximately 382,000 tons in the first quarter of 2014 where we did not have any annual maintenance downtime. Our pulp sales volumes were down in Q1 and totaled approximately 350,000 tons, compared to 361,000 tons in Q4 2014 and 381,000 tons in Q1 2014.

Our Q1 sales were weaker relative to Q4 due to seasonal factors including the Chinese New Year holidays. Our Q1 sales by region were 234,000 tons in Europe, 85,000 tons in China and all other regions combined were 31,000 tons. In addition the mill sold approximately 199 gigawatt hours of electricity in the quarter compared to 202 in Q4 and 201 gigawatt hours in Q1 2014. Relative to the fourth quarter our Euro per unit German fiber costs were up slightly in Q1.

Overall the German fiber market is essentially in balance but some weather related harvesting limitations pushed prices up slightly in the quarter. We continue to see sluggish demand for fiber from the board and pallet industries though we expect German fiber prices in Euro terms to remain steady through Q2. We continue to monitor this market closely and are very focused on opportunities to reduce our German fiber cost going forward.

In British Columbia our Q1 per unit fiber costs were also up moderately this quarter in Canadian dollar terms relative to Q4. We anticipate that Celgar's Canadian dollar per unit fiber cost will increase modestly in Q2 2015 due to increased demand for fiber from the Coastal Mills. We're currently satisfied with each mills fiber inventories and expect that we will be able to continue to source the fiber that we need. The timing and duration of our remaining 2015 annual maintenance shuts are as follows; in Q2 Stendal has a 10-day shut, in Q3 Rosenthal has a 14-day shut, and in Q4 Stendal will have another two-day shut.

With respect to our NAFTA claim, we continue to expect the final hearing to wrap up by middle 2015 with a decision in either late 2015 or early 2016. In closing, we are beginning to realize the benefits of our new financial structure and excited about our ability to create shareholder value from the financial flexibility we have created.

Operationally we will continue to build on our production and sale successes. Regarding the NBSK market we expect this is supply and demand fundamentals we will create upward pricing pressure beginning mid Q2 and we continue to believe that the incremental tissue supply will drive strong pricing. We continue to be optimistic about the medium to long term NBSK supply-demand fundamentals, which we foresee as being driven by increased economic standards globally.

As I have noted in the past we remain committed to growing shareholders? value. The board is continuing its review of the capital allocation options and will be further discussing this topic at the upcoming meetings. That is the conclusion of my prepared remarks and I will turn the call back to the operator so we can open the call for questions. Thank you.

(Operator Instructions). Your first question comes from the line of Amir Patel from RBC Capital Markets. Your line is open.

Hey good morning. Jimmy, what sort of impact do you expect IP and Dontar's fluff capacity additions next year would have on the softwood market because from what I understand both mills will likely be producing SPSK at the initial stages.

Yes. Of course, they have been I guess this wild card in regards to the China market because of course the fluff pulp is sold in different format than the paper grade and of course most of the paper producers don't have the capability of essentially handling the roles very easily. So it's really more of a component in the China market. We feel that basically what is driving the demand for hard and softwood really is the impact of really the more heightened focus in regards to environmental issues in China.

And in the past of course you've heard about a lot of these old kind of polluting mills being shut that was really never a real clear picture as to the capacity that was being closed. And of course a lot of these mills after the inspector or the federal government representative had gone, a lot of the provincial governments allowed these facilities to restart and of course the anticipated really closures in capacity never really happened to the degree that their announcements tended to indicate.

I think what we're seeing last year and certainly moving forward, the fact that both at the state as well as the federal level in China the focus on the environmental side is very, very strong. You're seeing a lot of these closures actually happen. And I think that's where the unexpected demand in regards to the both on the hard and the softwood side has occurred and that's what I see is going to continue to support demand growth.

If you look at the China shipment numbers because of course the numbers being published by PPC it doesn't really underlie the actual growth in China. Because it does not include the actual monthly shipment side of Russia into China. So if you look at the understatement in terms of the actual shipment you are talking about a sizable number as of course it will start to ramp up all through last year.

And so in comparison if you compare last year's demand growth overall for softwood and NBSK it?s certainly understated and we will only see the real numbers as the global yearly numbers are calculated, later on of course. And therefore my premise basically is the graying population, which requires a lot more adult continent type of products will easily pick up in time of this extra production of fluff.

At the same time, we're seeing that the underlying growth for both hardwood and softwood pulp as a whole is certainly understated by the numbers and therefore we feel very positively that this kind of additional incremental increase is not going to have a marked impact in terms of the strength of our business.

Okay. Thanks, that's helpful. And just the final question I had for David, could you just give us an update on your CapEx plans for the year? Is $45 million still a good number and maybe if you could just outline some of the bigger projects planned. Thanks.

Sure, the guidance of $45 million is still intact with Stendal being about $20 million of that, Rosenthal about $15 million and Celgar the remainder. I guess the two largest projects would be evaporation plants at both upgrades at both Stendal and Rosenthal. Both of them are related to the wastewater fee offset program that we've talked about on these calls before.

To simplify it, it?s really in a way it's like a grant where we were charged a wastewater fee on an ongoing basis so it gets accrued every month into our costs and if we can design a capital expenditure project that reduces our upfront load we can treat that capital expenditures and offset to the fee and in fact not having to pay the fee. So we've got track record of every three years on these programs of having a big release into income from the release of these fees being offset by CapEx.

So that's the two biggest. I would say other than those two it's really just a whole bunch of high return, smaller high return projects, a little bit of maintenance and business capital in there I would say 30% to 40% at the most is and will be. Which simply means in our world that it's got a return that exceeds our two to three year threshold. But it would still have a return, but not the high return level.

Okay, great. Thanks. That is all I had.

Your next question comes from the line of Andrew Shapiro from Lawndale Capital. Your line is open.

Hi, good morning. Jimmy, what are the debt metrics you and the Board look at when determining the timing of when you might institute a dividend?

Well I don't think it's really the debt metrics per se that really underlines I guess. It is of course one of the facts that we look at, but I think you know of course as we transition from very restricted financial structure to one which now has changed since the end of last year and of course we took a significant amount of our cash resources to effect that and therefore right now of course we are building our liquidity position.

Our assumption in regards to the market is certainly playing out and therefore the confidence in terms of the stability of the market also plays a big role in that. The currency issue of course has supported our returns. And therefore of course we have to be cognizant of the potential for a sudden reversal in the euro versus the dollar as an example. Of course at euro exchange rates today in terms of the present pricing regime for our pulp of course our margins are very attractive.

Now we cannot re-price our commodity as rapidly as the financial markets we price to currency and therefore we do have to build in, in terms of our overall assessment some form of conservative views in regards to that aspect. But I can say that as we move forward as certainly our liquidity is built and is continuing to build confidence in terms of this year's supply-demand balance for NBSK is still very, very, very positive. We're looking for, I think, very stable type of markets and therefore we are likely that in the near future some form of capital kind of optimize return for the shareholders probably will be considered.

With the Rosenthal tall oil project completed, is the production now going on according to your plan and are you still comfortable with what I think you guys said was an incremental $2 million a year number from that plant project?

Yes. In terms of the performance of the tall oil in fact it has lived up to our expectations in many cases actually exceeded clearly from a production perspective our expectation. I think you have -- you don't see it as a big impact, because of course although we were getting very attractive pricing for the tall oil in euro terms of course the decline in the euro in relation to the dollar has kind of tempered that kind of increase in our revenue coming out of the chemical area.

Lastly and I'll get out back into the queue. I have another question or two after that perhaps. But on the NAFTA claim you say there is a hearing mid-year then they will all ruminate about this and maybe end of year, early spring. Are there any other milestones in this process, there arbitration, settlement issues, anything else that might intervene like at the courthouse steps the day before the hearing type of thing? How do you think this may play out?

Maybe David can answer that also.

Yes. Hi, Andy. I don't really think there is much we can predict in that regard. The process is all of the paperwork is done. Back and forth, back and forth. There is oral hearings in Washington this summer where witnesses are called and cross examined from both sides and then the arbitration panel has three to nine months to make a decision. So, what is unknown to us is whether Canada will put pressure on DC to come to the table to try to find a solution with us. We don't know. One side of our brain expects that might happen, but the other half says maybe it won't. So really can't predict at this stage.

Okay. Great. I'll back out, come back to me if I'm in the queue again.

Okay, sure.

Your next question comes from the line of Andrew Kuske from Credit Suisse. Your line is open.

Thank you. Good morning. I know on some of the past calls, we've talked about you being more concerned about the pace of change with FX moves rather than the absolute change. So I guess I'm just sort of curious about your views on, is there an optimal level of FX you would like to see from just the standpoint of how it impacts pricing and then how it impacts your cost structure?

Well, clearly a gradual weakening euro and Canadian dollar has a positive impact on our overall performance. But to be honest euro and the Canadian dollar at these levels I think is very comfortable. I guess our concern clearly is that we have a very rapid reversal of the existing trend and as I earlier stated of course we cannot re-price the U.S. dollar pricing as rapidly as the financial markets re-price the currency. And therefore there will always be a significant lag and that hurts us from a margin perspective.

I guess just in saying that your margins right now are pretty robust even though the top line per unit pricing has declined your margins are good because your cost structure has declined so much. What's your outlook on just your cash costs out into 2015 in the current FX environment that you see?

In the current environment I think most analyst reports I said are looking for some stability and if that were to occur then our euro and Canadian base costs have dropped, our revenue level has dropped, all in U.S. reporting and our margins are wider. So I mean there's not a lot of inflationary costs in our business today other than the movements in fiber that tend to be pretty modest in our view going forward. So all in all unless we have reversals of currency we're looking at a pretty stable picture.

And you don't really anticipate any meaningful changes on the chemical side?

No, I don't. No.

Okay. That's very helpful. And then maybe one little small question. I think it's at Rosenthal one of the labor agreements is about to expire. Is there any update on the status there?

Nothing has been decided, but we've never really had an active strike or anything like that from the Rosenthal, no.

Okay.

It will just follow the European trend.

Okay. Great. Thanks.

Your next question comes from line of Sean Steuart from TD Securities. Your line is open.

Thanks. Good morning. A couple of questions. It seems as the balance sheet improves your focus is more on considering returning capital to shareholders via dividend. One of your competitors is at least talking about potential acquisitions and in the past, Jimmy, you've mentioned growth as an objective. Can you just talk about what the environment might look like for M&A right now? Has things changed at all given recent price trends? Any thoughts on the M&A environment?

You know, of course, because you are buying like assets in a way and our EBITDA multiples in many cases are similar in that situation whether the stock market is up or down is not that relevant I think in terms of I guess the overall valuations like-to-like it's fairly similar. So I think what really determines our interest would be really more mill specific in terms of location and the type of equipment it has. And, as I earlier kind of indicated, if you look at the landscape in regards to potential acquisitions really there really isn't that many that's not already essentially owned by the larger companies or that are really readily available.

So of course we're not going to be beating around the bush as to basically try to get things kind of going. If of course some are offered then certainly we will look at it depending on the type of asset that of course is kind of offered to us. At this point I think, as I earlier indicated, our focus in terms of our organic growth is really -- are really peripheral businesses that we are very strong in especially in regards to our wood activities in Germany.

We are the biggest kind of wood organization certainly in Germany and I think we are capable of really further improving our overall efficiencies there which would really have an impact in regards to our cost structure in a meaningful way. So I think those are the strategies that we are really focusing on rather than trying to essentially grow by acquisitions unless we see that there is a specific target that fits to our long-term views of where we want to be strategically.

And as I said in terms of the strategy of the Company, we're not really looking to grow revenue. What we're looking to do is really grow margins. And of course coupled with that, you will have revenue growth. But really what we're focusing is high margin growth opportunities and that is really singular strategy above all.

Understood. And Jimmy, you mentioned the narrowing spread between softwood and hardwood in anticipation of that could induce I guess some substitution at the margin. Have you started to see that in China yet? Is it your sense that's already taking hold at this point?

Well I think what we're seeing is that certainly the Chinese market was very surprised at the strength of the hardwood. And I think if you speak with anybody everybody will say that the demand side and certainly for a hardwood seems to have come from somewhere that nobody really can see or expect it. But the point of the matter is if you look at the inventory levels of the major hardwood producers in Brazil their production and sales essentially being very, very good and matching and therefore there has really been no inventory build as everyone would have expected.

And therefore there has to be significant demand coming from the end use and typically this would be the guys who are having to use hardwood replacing whether it's agricultural based pulp or from recycle type of papers. And therefore we see this trend continuing because we know that China is going to further increase its type of capacities that are slated for closure and this is an ongoing thing. And so it isn't just this year but next year as well, there will be significant closures of old capacity, not just in pulp and paper but also in oil industry. And this bodes very well with the continued growth in terms of the living standard in China as a whole, which of course increases the demand for more premium grade paper, which is the softwood side.

We're seeing certainly in terms of the radiata side there is not going to be really any expansion. In fact if the conversion of the softwood to dissolving occurs in Chile by Orocco and that I think is again going to rebalance the softwood kind of capacity that is going to come in the next three type of years. And so even on the announced capacity increases for softwood, you can see that if you take into the picture of reasonable growth in demand that really the capacity increases are really not substantial, if you count the fact that 0.5 million tons from Orocco will transition out to dissolving.

Understood, that's all I had, guys. Thanks very much.

Your next question comes from the line of Mark Kennedy from CIBC. Your line is open.

Good morning guys. Just a question. Just curious how has Celgar operated coming out of its maintenance shut?

Actually it has started up much better than prior type of restarts. So we are seeing certainly improvements both in regards to the implementation of the maintenance shut and the restart from the maintenance. So we are feeling positive that things are gradually changing at that mill.

Yes, because it was about a year and a bit ago you did the manpower reduction there as well so. So it's sort of coming out the other side of that now would you say, Jimmy?

Yes, I think that certainly because of the many of changes that we of course implemented there has been of course some level of discontent as anyone would expect. I think those have now kind of gone through the system. I think that the relationship between our hourly workers is starting to improve certainly and I think overall the focus in terms of efficiency and productivity has also had a good impact in that regard. And I think we are having now much better kind of performance coming out of the Celgar mill.

I think we hope to continue this with additional support in regards to the management and supervisory strength, which I think is certainly needed because I think we don't have the full kind of capacity in terms of that area. And therefore we will be looking to add in regards to more the skill sets that we think would complement the continued progress of this mill.

That's great. Thanks for that color. That is it for me.

Thanks.

Your next question comes from the line of Sean Sauler from Redwood Capital. Your line is open.

Hey guys. Just a quick question on the Celgar mill maintenance shut. The $18.3 million, how does that compare to historical periods? And then secondly, when you think about Stendal and Rosenthal, is it in a similar ballpark, the shut for the year or is it less than or greater than the $18.3 million?

Hi, Sean, this is David. So to put this shut in perspective it was a big one. There was a lot of work that we had planned and we had, as Jimmy mentioned, we had really good cooperation. We did a lot of work. It was quite successful. A Canadian shut is, it's quite different to a European shut from a cost perspective. So I would say Celgar was a bit bigger than usual, but to put it in the context of a Stendal, Stendal could be maybe two-thirds of that cost and Rosenthal would be about half. Just to put it in round rough comparisons.

Okay, thanks a lot.

Okay.

Your next question comes from the line of Daryl Swetlishoff from Raymond James. Your line is open. Again your next question comes from Daryl Swetlishoff from Raymond James. Your line is now open. Your next question comes from the line of Andrew Shapiro from Lawndale Capital. Your line is open.

Thank you. Follow-up. With your debt being fairly new and I guess at a premium, there is not opportunities perhaps there, but correct me if I'm wrong. But what are your plans therefore with respect to I guess, we?ll call it non-deal road shows, investor relations, expanding the analyst coverage, et cetera for the Company's valuation?

Maybe I'll take that one, Andy. We just had a really great week with Raymond James on a non-deal road show. We saw a lot of new accounts. Saw some interesting shareholders. We're going to do more of that. We will be going out with RBC not next week, but the following week for another four days with investors meetings that they?ve set up and we'll continue to take every opportunity we can get from the banks who cover us. To do that we also attend most of the conferences as most of our shareholders know. And we just -- we're going to do a lot of marketing this year because we got a great story to tell.

Great. Let us know when you are in the Bay Area.

You bet.

We will.

(Operator Instructions). Your next question comes from the line of Howard Bryerman from Penn Capital. Your line is open.

Yes, thank you. Just want to ask couple questions around leverage. What's your leverage ratio, your current leverage ratio and how should we think of some sort of margin of safety around your two senior note offerings? There is only about $900 million of market cap underneath us so if the cycle should take a leg down or these demand/supply should fall out of balance, how do you guys look at the -- at your leverage now at the senior level, now that you've restructured your balance sheet?

Okay, Howard, well the lever level is gross debt basis, we were down below three now on a net basis getting into the 2.5 range. One of the things that's unique about our business or is important to understand about our business is that we are very heavy working capital operation. So our comfort comes from running our business with a healthy cash balance and significant undrawn revolver capacity. We?ve been through many cycles, Jimmy and I, in this business and one of the things we know is that at the bottom of the cycle we can also suck quite a bit of cash out of working capital through management activities.

So for the -- when we think about the quality of our revenue stream, having roughly $100 million coming from energy and chemical sales which are pretty stable and like non-cyclical revenue streams, we've got fixed charges in and around that level. Interest expense of 48, CapEx on the 40 to 45 range which a lot of is discretionary and then income taxes, which is not something you pay in the bottom of the cycle. So we've got a very healthy margin office at our fixed charges and we've got lots of dry powder.

We would reduce leverage every chance we get, but we've signaled in the past, we wouldn't be a buyer of our bonds at a premium but we did structure ourselves to have a five year and a eight year series. So we've got the two year call opportunity on the five years which is something to look forward to, if there is no other opportunity in the meantime. We also structured ourselves to have some pre-payable debt. So we did draw on our revolvers modestly. We arranged a PICC note on an acquisition of our minority interest and we retained the interest rate swap because we bet we were going to win both on currency and on rate increases before that swap matures. So we do have a little bit of pre-payable debt to focus on as well.

Okay. Very good. Thanks.

Your next question comes from the line of Andrew Shapiro from Lawndale Capital. Your line is open.

Yes hi, final follow-up. Last quarter there was some discussion of, not really labor issues with you, but with transportation providers. And I think it ended up being a short dispute. But there's also been from time to time in our long history with your securities, whether it is trucking issues at the port, ships, containers, with competition with the oil and energy side. During the quarter that just ended would you say that your transportation costs and the transportation issues were optimal or there could still have been some improvement that we might see in the coming quarters?

Well, Andy, couple of things in that. I think all the forest products companies in Canada on the Canadian side tend to struggle a bit with CN and CP and we've been quite proactive about that. So we've created an alternative for redundancy, if you like, so we've got reload capacity to go to the end. So we've got optionality and then so we're feeling much better about our future in that regard where we can dodge and dart around the different issues which may arise either be it rail car shortages or weather related issues or port labor issues.

On the cost side we -- the first quarter did have some winter conditions in it so I think things are improving. So I wouldn't say it was the optimal logistics for us either in Europe or Canada. But nothing horrific obviously. It was a pretty good quarter, but we still had some congestion and rail car shortage issues in the first quarter that we had to deal with.

Moving forward we are taking various steps both in Germany as well as Canada to make sure that we have alternative means of getting both our raw material and our finished products effectively. There are several plans already that have been identified that we will be able to further improve our assurance and our ability is to actually kind of circumvent disruptions and we're definitely better positioned than ever before. And as we go forward we will be further better positioned to essentially deal with these problems.

So all in all we're very comfortable with the strategies we have developed and are starting to implement. That the impact of both the rail car issues in Canada related to CT, the port strike issues again are related to the Canadian port, and the winter related type of disruption in terms of the raw material logistics, is going to be much better managed moving forward, because we have identified the various solutions to those particular unexpected events.

And just to get a little bit of color maybe on the timing. Each of these quarters especially given your call of prognostication of stability of the cash flow generation that this Company is creating and then building up like this quarter net cash probably went up, I guess -- or net debt went down by $50 million, net cash went up by $50 million or so. And you do that again this next quarter or the quarter after et cetera you get to a point where you have already guided that the dividend or other type of shareholder value actions might occur.

How often does the Board meet and do you have like this is going to be a year end discussion, this is going to be a end of third quarter kind of agenda item, or can you give any color for when you think the various items, which I clearly understand the Company needs to get enough cushion for to tackle. But can you give any visibility as to this is kind of our schedule item? It will be the third quarter or the fourth quarter or its going to --.

Hi, Andrew, it's Dave. You can't get us out in front of our Board so I just can't really give you a good answer. I'm sorry about that, but our Board does meet regularly, it is definitely on the forward agenda. And I really can't give any more guidance than that.

All right. Thanks. We'll ask next quarter.

There are no further questions in the queue.

Well, since there are no more questions, I would like to thank everyone for coming today's conference call and call it an end. Thank you.

Thanks everyone.

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