Mercer International Inc (MERC) 2016 Q1 法說會逐字稿

Good morning, and welcome to Mercer International's first quarter 2016 earnings conference call. On the call today is David Gandossi, President and Chief Executive Officer of Mercer International; and David Ure, Senior Vice President, Finance; Chief Financial Officer and Secretary.

I will now hand the call over to David Ure.

Good morning, everyone.

As we typically do, I will begin by taking a few minutes to speak about the financial highlights of the quarter. And then I'll pass the call to David to discuss the markets, our operational performance and our outlook into Q2.

Please note that in this morning's conference call we will make forward-looking statements. And 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 in the Company's filings with the Securities and Exchange Commission.

In Q1, we achieved EBITDA of $45.3 million, compared to $61.5 million in Q4 2015. Pulp demand was solid in the quarter, as we achieved a near record level of pulp sales, up almost 42,000 tons compared to Q4 2015.

The relatively high level of the US dollar continued to keep downward pressure on NBSK pricing, as did the psychological influence of sliding hardwood prices. Although NBSK pricing was, on average, lower in Q1 when compared to Q4, pricing in all markets has become stable for the past two months.

The quarterly average RISI list price in Europe fell to $792 per ton from $817 in Q4 of 2015. In addition, the quarterly average list price in China went down to $590 per ton from $600 per ton in Q4. NBSK pricing has now stabilized. We believe we are seeing some upward pricing momentum in Q2.

Overall, our mills ran at near-record production levels. And as a result, EBITDA was positively impacted by lower per-ton costs and higher sales of energy and chemicals. In addition, we remain pleased at the rate of fiber cost reductions, which continue to trend down in all of our markets.

Unfortunately, currencies went against us in this quarter, as did NBSK pricing. Although the US dollar remains relatively strong, late in the quarter, it weakened considerably against both the euro and Canadian dollar, which created a foreign currency loss on certain US dollar-denominated receivables and cash balances in the quarter, which totaled $6.8 million.

And maybe I'll just pause here for a moment to explain this feature of US GAAP that's not always immediately intuitive. When our euro and Canadian dollar subsidiaries hold US dollar cash balances or accounts receivable, those accounts are converted to euros or Canadian dollars in the books of our subsidiaries at the then-effective exchange rate. When that FX rate changes, it triggers a gain or loss. Under US GAAP, when we roll up those subsidiary books to consolidate, that gain, or loss in our case, is rolled up as well into our US dollar-denominated consolidated income statement.

And just going back to comparing to Q4, I'll just remind you that in the prior quarter, we benefitted from the recognition of a one-time $6.1 million electricity rate settlement at our Celgar Mill.

We reported net income of $8.8 million for the quarter or $0.14 per basic share, compared to net income of $21.7 million or $0.34 per basic share in Q4. Our current taxes totaled approximately $1.8 million. We continue to have significant tax assets, but certain tax jurisdictions limit their use, which will continue to create a modest current tax expense.

Turning to cash flow -- during the quarter, we took advantage of some temporary weakness in the secondary market for our bonds, and we repurchased some of our 2019 senior notes with face value totaling $23 million. The average purchase price of the notes was slightly above par but compared favorably to the $103.5 call price that becomes available to us beginning in December. The repurchase was accompanied by a write-off of a portion of the related deferred financing costs and resulted in an accounting loss of approximately $0.5 million.

Despite the debt repurchase, our cash was still up over $30 million when compared to Q4. This was due in part to working capital movements, as we work through our winter wood inventories, and strong sales reduced our finished goods inventories.

Capital expenditures grew $7.5 million during the quarter, the majority of which was spent on high-return pulp and wood logistics projects at our Celgar and Rosenthal mills. Included in that total was approximately $0.5 million spent on our new ERP project. The project is progressing well and remains on target to be completed later in 2016. And of course, rounding out cash flows in the quarter was our quarterly $7 million dividend.

All of our revolving credit facilities were undrawn at the end of the quarter. in terms of our liquidity -- our consolidated cash balance was approximately $140 million at March 31st, 2016, and we had approximately $141 million of undrawn revolvers between our three mills. Combined, our total liquidity is about $281 million.

Our $140 million of cash at the end of Q1 includes approximately $10 million of restricted cash. These are funds that have been set aside to act as collateral for our Stendal 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 requirements. We expect this balance to begin to decline when our next scheduled settlement payment is made in October.

On a trailing 12-month basis, our net debt has improved to about 2.0 times EBITDA, a level that we believe gives us considerable financial flexibility as we consider capital allocation decisions.

And finally, you will have seen from our press release yesterday that our Board has approved an $0.115 dividend for shareholders of record on June 27th, for which payment will be made on July 7th.

That ends my overview of the financial results. I'll now turn the call over to David Gandossi to discuss market conditions, our operational performance and strategic activities.

Thanks, Dave.

During the quarter, our mills performed well, and pulp demand was solid. EBITDA was lower than we were expecting, primarily due to the rapid weakening of the US dollar at the end of the quarter, which created foreign currency losses, as David just discussed.

In addition, slightly lower pulp pricing also contributed to the EBITDA reduction. However, partially offsetting that reduction was our higher sales volume in the quarter, which highlights a strong demand for NBSK. I'll speak more about our fiber markets in a moment. But compared to Q4, our overall Q1 per-unit fiber costs were down slightly.

Once again this quarter, currency movements had a significant impact on our results. Our operating costs are primarily incurred in euros and Canadian dollars, while NBSK pulp is quoted in US dollars. So as a result, our business and operating margins benefit from the current strength of the US dollar.

However, our mills also maintain US dollar-denominated receivables and cash balances, as Dave discussed. So these currency translation losses show up when the US dollar weakens as it did the end of the quarter. The other side of this, though, is that as we move forward with the weaker US dollar, this should help us support NBSK price increases, as it will reduce the cost of pulp to our European and Asian customers.

March NBSK producer inventories were 30 days, up one day from the previous quarter end but still considered to be generally in balance, as we continue to see steady NBSK demand in all markets. The April NBSK list price in Europe is $790 per ton, and the net price in China is $590. And we continue to see steady demand for pulp in all markets.

Pulp imports into China and European sales continue to be strong. Through 2015 and into 2016, producer inventories continue to reflect a balanced market despite the foreign currency-driven price declines. And currently, we believe both the European and Chinese markets are stabilizing, and we're now experiencing upward pricing pressure.

Looking forward, the expectation is that the global tissue market will continue to grow. As a result, we expect new tissue machines to continue to start up, especially in China, which will further strengthen demand for NBSK. We also expect the supply-demand fundamentals to keep Chinese and European pricing fairly steady through Q2 with the upward momentum, as I mentioned.

Regarding the much-discussed incremental supply coming online later this year and into 2017 -- we believe that the timing of these startups is such that this additional capacity will not negatively impact the market until late 2017. Our view on this is that overall NBSK prices are near floor levels for some producers on the higher end of the cost curve. Should prices slide, we believe the high-cost producers will under significant financial pressure.

Moving to operations -- as Dave mentioned, Q1 was a strong production quarter for us, as our mills ran at near record levels. In total, we produced approximately 378,000 tons of pulp this quarter, compared to about 367,000 tons in the fourth quarter and approximately 363,000 tons in the first quarter of 2015.

However, we do not expect this level of production in Q2 after what has been a particularly challenging maintenance shut at our Celgar mill in April. It is not unusual during a maintenance shut to extend its length, as some of the work is determined in the first few days, depending on the findings from technical inspections. This was the case for Celgar this year, and we chose to extend the shut from 12 to 18 days to accommodate additional tank maintenance.

The maintenance work was completed without incident, but we have experienced what I would characterize as a very difficult startup. And the mill is only now returning to full production almost 28 days after it was initially taken down at the beginning of the month.

So while I'm pleased with the way the shut was executed, our delayed return to full production is a disappointment, and it will reduce our Q2 production beyond our original plan by 15,000 to 20,000 tons. Our pulp sales volumes were up significantly in Q1 and totaled approximately 393,000 tons, compared to 352,000 tons in Q4 and 350,000 tons in Q1 2015.

Turning to our power sales -- the mills sold approximately 207 gigawatt hours of electricity in the quarter, compared to 204 in Q4 and 199 gigawatt hours in Q1 2015. Relative to the fourth quarter, our euro per-unit German fiber costs were down slightly. Overall, the German fiber market is in balance. We continue to see sluggish demand for fiber from the board and pellet industries. So we expect German fiber prices in euro terms to remain steady through Q2.

In British Columbia, our Q1 per-unit fiber costs were down this quarter in Canadian dollar terms relative to Q4, primarily due to the strong sawmilling activity in Celgar's fiber basket. We're forecasting that Celgar's Canadian dollar per-unit fiber costs will remain essentially flat in Q2. We're currently comfortable with each mill's fiber inventory levels and expect that each mill's fiber inventories will continue to trend down heading into the summer.

Our 2016 annual maintenance shuts are scheduled as follows. As I noted earlier, Celgar's Q2 shut went from 12 planned days to a total of 18 days due to unplanned repairs. Sandal will also take three days of maintenance in Q2. And in Q3, Rosenthal will have its 12-day shut. And finally, in Q4, Stendal will be down for 12 days.

I'm pleased that we're able to opportunistically purchase $23 million worth of our 2019 senior notes at rates that were essentially at par. With respect to our NAFTA claim, we continue to expect a decision in the second half of 2016. There's nothing new to report there.

To wrap up -- I'm pleased to confirm that our Board of Directors has again approved a quarterly cash dividend. And we're really happy to be able to continue to return cash to our shareholders.

That's the conclusion of our prepared remarks. And I'll now turn the call back to Chris so he can open it up for questions. Thank you.

(Operator Instructions) Bill Hoffman, RBC Capital Markets.

David, can you just talk a little bit about just the hardwood versus softwood markets? I mean, obviously, the hardwood market prices continued to drag and are likely to continue to be weak. Are you seeing any of the Chinese customers trying to push more of the mix into the hardwood versus the softwoods? I know you got to still have softwoods in the tissue business. But I'm just wondering if there's more and more pressure to do that.

Yes, Bill, we talk about this all the time. There's always guys that can slip back and forth to bid on the margin, maybe 5% or something like that. When you're talking about advanced paper products, like high-end tissue, modern machines -- I mean, they've got a recipe they're trying to follow, they've got a branded product they're trying to sell.

So you get some movement around the edges. But it's -- at these price differentials, we don't really see it in the market. It's hard to quantify.

Prices of hardwood have been under a lot of pressure as you know, with spreads approaching $120 and increasing, between the two grades. But demand for NBSK is strong. And the industry is pushing the [610] in China. And in Europe, it's pushing [810]. I'm more optimistic for me than I've been for a while. We've been trying -- Mercer first announced 810 in Europe in January, and it's been hard to get -- the industry hasn't all sort of rallied around that, even though we have this currency move.

But it feels to me like there's a good chance we're going to get it. So kind of confirms that substitution happens around the edges. But it's not something you can just fundamentally take the long fiber out, replace it with short fiber, on these high-end paper grades, which is a space we plan.

And just to your comment on the currency -- obviously, a big move. And it seems like prices are definitely lagging in the currency move. What do you guys see as the currency impact, maybe in the second quarter versus first quarter?

Well, it hurts the margins, obviously. So that's why we're pushing so hard to get the price up. It continues --

Is there a way to quantify the EBITDA impact to that in the second quarter, this point?

Well, you just can look at what the -- take the net price of pulp times the exchange rate, and apply that difference to the number of tons. And it's a direct drive. Unless you get the price to compensate.

Thanks.

And then, I guess the other part of that question just would be Celgar outage -- any dollar price impact on that? Same thing, just (multiple speakers) differential?

Yes, I won't -- we haven't disclosed any of our maintenance costs. I don't know them off the top of my head. But the guys did a good job. When you have a tank that you've got to take extra time on, obviously, you cut back on the overtime, you send the guys home on Sundays, and things like that. And you slow the work down to try to bring the costs down.

And so, we did that. We made some pulp in the intervening days. But on startup, we had one of these big stock lines go, and basically buried ourselves in pulp for a couple of days. Had to dig out and repair it all.

So these things happen. But I think we just need to remember in the math that basically we're out 40,000 tons for the month, because of the shut. And that'll just roll forward.

Thanks.

And then, just last question -- big picture, strategically for you at this point, you looking more at capital projects, and/or what do you think about acquisitions?

Well, I think I've been pretty open about how we see acquisitions in the NBSK space. There aren't really many mills of the stature that would attract our attention for the Mercer Group that are likely to come available. And if they did come available, I'm expecting that it'd be a pretty high price.

So we're a really disciplined company. We're not going to get bigger just for the sake of getting bigger. It's all about making money and creating value for our shareholders.

So I don't see an NBSK pulp acquisition in our future. But we are very focused on strategy, and we're continuing to work on that.

All right, thanks.

Amir Patel, CIBC Capital Markets.

David, could you give us an update as to what you're seeing on the demand side in China, I guess, maybe primarily from tissue customers on the end markets?

Yes. Well, our tissue customers are ordering pulp as usual. Their business is still chugging along, they're doing well. They've had a slight erosion on margins over the course of the last year or so, but still pretty healthy businesses.

There's been some rumblings about challenges in the space -- the guys up near Beijing with some of the energy issues they had up there for a short period of time earlier in the year, but I think that's more or less resolved itself. And everybody's kind of -- feels like business is normal.

And for us, we had very little tons to sell [in May]. We've basically sold already. And a lot of our competitors are getting into spring maintenance shuts. And the tension in the market is really more -- the buyers from our tissue customers are looking for pulp that we can't deliver. And that's what gives me the optimism that we're going to get some traction on this $20 price increase that's being pushed into the market right now.

Okay, thanks, that's helpful.

And then, I guess just talking about what pulp assets are worth -- it seems like we're probably going to get a large fluff transaction at some point in the next few months. And there's been an announcement of a fluff greenfield in the US South. There's not a lot of comps for new NBSK mills. But how would you kind of compare maybe what you think the value of NBSK assets are relative to fluff assets? Because the prices aren't that different.

No, that's right. And fluff historically has traded at a slight premium to NBSK. But we're going to have an oversupplied situation here with the integration moves by [South]. So I'm expecting fluff will be a little bit oversupplied for a while, although demand for fluff continues to grow at a reasonable pace.

So I -- yes, it's a hard one to say. We didn't participate in that process, for the reasons I articulated earlier. We built a pulp mill, so we know what it costs. We know what replacement cost is to build greenfields.

Also, we bought a mill -- in our minds, we were prepared to -- when we bought Celgar, I think we paid five times a trend EBITDA number. So that might be some benchmark for you. But I don't know what the expectations are in this process you're referring to, because we didn't participate in it.

Right, okay. That's all I had. I'll turn it over, thanks.

Dan Jacome, Sidoti & Company.

Just two quick questions -- is there any update on NAFTA? And then, my second question was -- I was impressed by the free cash flow generation this quarter and the working capital leverage. Can you provide any color on how we should think about that going forward? Would you need to see the same level of shipment increase that you saw this quarter to be able to possibly enhance the working capital leverage going forward?

Okay. Well, NAFTA -- there's really no update. It's in the hands of the tribunal. And so there's no new news there. But as I've said, I think we're expecting a decision in the second half of the year.

In terms of free cash flow -- the first quarter was very strong cash coming out of working capital, which is what we'd expected. I think I talked about that on the last call. You shouldn't expect the same thing in the second quarter. The second quarter is really more balanced from a working capital investment point of view. And you do have a maintenance shut in there. So the free cash flow generation would not be the same equation as in the first quarter.

Having said that, it's a reasonably good business. And lots of liquidity, and it's really just reflecting the seasonality of our business. And the timing of maintenance shuts is (inaudible) key factors.

Okay. Totally understood. Thanks a lot.

You're welcome.

Andrew Kuske, Credit Suisse.

Maybe a nitpicking question first, and it's just on the mechanics of the FX commentary that you gave earlier on. And are you working with -- effectively, when you [look at] the rollup of the subs, is it at an end-of-quarter FX rate, or is it an average through the quarter? And I ask the question just in part because we saw some pretty big FX moves through the quarter itself.

Yes. Andrew, you've got it right, exactly.

So that adjustment, that mark-to-market adjustment or that gain or loss, is actually calculated on the last day of the quarter. And it's compared to the last day of the previous quarter. So you're right, you can have a situation where the foreign exchange rate is pretty flat through the quarter. And then, if it does something odd on the last day, that's the rate that we use to translate. So you can get a little bit of volatility there, for sure.

Okay, that's quite helpful.

And then, if I may, maybe just a broader question -- and you alluded to this earlier on in the commentary, with prices where they are in NBSK maybe putting some of the higher cost producers under pressure -- could you just maybe elaborate a little bit on how you think of the slope of the cost curve at this stage, and maybe the economic returns that people are earning, just en masse; and what the $20 means to you? I think we've got a good idea on that. But maybe broadly from an industry perspective, in terms of the cost curve?

Yes. Well, for NBSK, our view is that the fourth quartile has got some pretty steep slope on it. And it's almost -- like it's a big chunk of the fourth quartile. There's two million to three million tons of pretty high-cost stuff out there. These are mills that are not energy -- clearly, not even balanced. So they're buying electricity, their utilizations are poor, they're older mills.

So they could be -- when you factor in energy and the maintenance of business requirements -- these guys could be $150 on the cost curve away from us. So that's one factor.

The other piece is -- the older these mills get, the higher the maintenance. And their inability to invest in any high-return capital, because their maintenance of business and their safety-related and environmental-related CapEx are overwhelming.

And then, further point is the US boiler emissions regulations are tightening up. And I'm not just thinking of market pulp mills here; I'm thinking about the integrated smaller chemical pulp mills as well -- are going to face some pretty serious CapEx challenges in the United States to comply with the new boiler regulations.

So things get -- things go [soft at all], I don't think it has to go very far before some of these guys just give up the ghost and say -- okay, I'm done, I'm going to buy my pulp from the market producers that are committed to the business long term.

And so you won't see that happen till it happens. But our view is that there's a lot of at-risk competitors that tell us we should keep our business optimism strong, and just chug through whatever happens if we get some volatility in our pricing.

Okay, that's very helpful. Thank you.

Wes Swanson, RBC Capital Markets.

Just had a couple quick ones here.

Just on pulp realizations -- it looks like they were down a little bit more than NBSK benchmark prices in the quarter. Is that sort of mix-related? And how should we think about that go-forward?

Yes, I think it would be mix, for sure. And don't forget, the European list discount widened January 1 this year as well. So I don't know what your reference period is. But first quarter, there was a widening of the discount in Europe, and further reason for us to be pushing really hard for that price increase, obviously.

Okay, great, that's helpful.

And then, seems like from your remarks, you're quite comfortable with your leverage position now. But on our numbers, and I think on consensus numbers, you're generating some pretty strong free cash flow yields over the next couple years. So what are your thoughts maybe just on deployment of distributable cash flow? I've noticed that you're chipping away, of course, at your 2019 maturities. I think there's a little over $220 million left on principal value there. Any thoughts on accelerating the sort of debt repurchases or share buybacks, or anything along those lines?

Yes. Really, nothing's changed in our capital allocation strategies, which I've spent quite a bit of time on in the past. And generally, we're -- to summarize, we look for opportunities to buy back the bonds without having to pay a premium for them. And we're committed to maintaining our dividend. And we are not interested in share buybacks at this time.

Right. And so when you mentioned you don't want to pay a premium for repurchasing bonds, I think it's, what 3.5% if you repurchase over the next year, and then down to, I think, 175 bps for the year after? Does that imply that that's something you might not be interested in with regards to your 2019 notes?

Yes. It's just going to depend on what's happening in the market and how we're feeling about things. But yes, I've signaled that we would possibly entertain coin bonds, if that's what it takes to continue to buy back debt. But we're also going to opportunistically watch the market. And if we see chances to pick some up, we will continue to do that.

Very helpful. Thanks, guys.

Andrew Shapiro, Lawn Capital Management.

I think a follow-up to this previous question -- I understand the idea and the goal and the concept of either the buyback of the bonds in the open market, if you can get them below the call premium; and also the idea that the call premium is going to decline over time.

One of the things that I think impacts you guys' decisions with your capital allocation, and when and how to take out those bonds, would be what the cost of alternative financing or refinancing would be in the market.

And last quarter, I asked a question -- you may have an update, which is the long way of getting to my question here -- have any of the credit -- the rating agencies who've had you on positive credit watch for possible upgrade -- have you gotten any feedback or any indication on that credit rating upgrade, especially now that you've taken out a bunch of those bonds already and reduced the Company's overall debt with the buildup of additional cash and the reduction here of bonds?

Yes, thanks for the question, Andrew. Certainly, we are on positive watch by both agencies. We talk to them regularly. We push them. They know that from a credit metric point of view they owe us two notches.

Yes.

Most likely, we'll get one. And it could happen at any time would be our expectation. We can't control them, obviously, but we know that that's what they're intending to do.

Right. Now, in light of getting one or two notches -- let's just say one -- is that sufficient in the current market environment if you were to get the one notch, preferably two notches, in light of where rates may be going over the next few years? Do you have a feel or timing for which you may be looking to go to the market and do a refi?

Yes. I think the quick answer is -- right now, we're still a little too far out. The tender premium would be too expensive, which would make an NPV-positive refi hard to do. So we just have to be patient for a little while.

Right. Okay.

Need a little more time.

Yes. That makes sense.

Your dividend -- based on current pricing, on the last quarter, and even now with the decline selloff today, you have a pretty sizeable dividend yield. And you've had it now for the last several months since you've instituted it. Have you seen yet new parties interested in the Company, its equities; that are -- we'll call it dividend-focused types of investors that have begun engaging with the Company?

It's hard to tell exactly what's behind the new interest. But there certainly -- we do have some new shareholders in our roster that have bought some reasonably good-sized positions in the last quarter or two.

So our view is, as management and our Board, that having a nice, steady dividend is something that investors care about and makes us more attractive, and improve the demand on the stock. So certainly, part of our -- fundamental part of our strategy going forward.

Okay.

And then, my last two real quick questions here is in Celgar -- you guys were engaging in new steps to enhance the power and byproduct profitability coming out of Celgar. You even brought your power specialist in from Stendal -- to doing that to increasing power generation. With this longer maintenance shut that you just had, and over the course of the last several quarters, have those projects all been implemented? Or are there still some that are on the table here for an improvement in the operating efficiency and margins coming out of Celgar?

Yes. I think there's lots of room for improvement there. You're right, we brought an energy manager over from Germany into the Canadian operation. He's been doing a great job. And he finds value in all sorts of different areas and programs within the Company. So that's a real positive.

It's also the case that the Stendal generator -- we put a big one in there. And so every additional ton of pulp that we make produces an additional ton of fuel. And so a lot of the focus at Celgar has been to enhance the production, trying to move it from where it's been the last couple years -- sort of in the 460,000-470,000 range, getting it up to the 500,000 and above.

And we don't have any bottlenecks per se below the 520,000. It's just the way the mill is balanced that -- we just have to take some of the risk out of some of the operating areas of the mill. And that's what we've been working on.

So I was really disappointed that the shut got extended. We lost those tons. The guys executed really well on the shut, they did a ton of good work towards this debottlenecking that I'm describing.

And then, what got them was something you don't expect -- it was like one of these big fiberglass elbows on a big stock pipe that comes out of a bleach tower, and it ruptured. And these things are all tested and inspected, and you just don't expect that. And it created a big mess for them to clean up. And so it's not a big technical thing; it's like basic plumbing.

So it was really disappointing for everybody that that happened. But we're getting the mill back up and running. And I'm hoping that with all this work we did on the shut that we can try to catch up some of those tons and show this mill -- get this mill up at that 480,000-, 490,000-ton operating rate.

And that will produce -- those are really valuable to incremental tons. Because the more you push that generator, the higher its efficiency. So it's -- they're really valuable incremental tons to be making. And there's quite a bit of upside there.

So it can drop a lot more to the bottom line from current levels?

That's right, yes.

Have you already seen, and is it built into the Q1 numbers, reduced transport costs by the increased railcar capacity coming open because of the energy price and oil sands economic troubles?

Yes. The general logistic costs have abated quite nicely in the last couple of quarters, just trickling down. We get some -- there are some unique things on the market right now. Like, for example, the container rates from Hamburg to China are -- they're really cheap. So we're certainly seeing some of that benefit in some of the areas.

Nothing -- it doesn't sound like there's anything particularly noticeable in Canada with the -- where transport had been an issue before in getting railcar capacity, et cetera.

Yes. Yes, we've done a lot of work to sort of remove that risk, if you like. So we've built a reload center, where we've got access to the BN now. So we have both CP and CN that are available to us to bring pulp from the Canadian mill to the coast.

And we also have a long history of dedicated ocean freight, break bulk freight, to China. Unlike many of our competitors, we have steady -- 100% committed to us vessels booked. That brings our break bulk rate down quite nicely. And so it's a very efficient logistic change. We just keep pushing everything to the coast, pushing it and pushing it. And then we fill up a vessel, and off it goes to China.

So we've enjoyed -- we've had that strategy for several years. The freight rates to China have come down nicely on break bulk. This last renewal has been another pleasant surprise. So everything's little bits here and there, all adding up, and they're going in the right direction cost-wise.

But it's not -- there's not one noticeable callout on that.

And regarding a separate potential noticeable callout -- you had, obviously, a big one-time rebate award. But part of the settlement on the BC Utilities Commission was that your annual operating cost savings, I think, were supposed to be enhanced, because there was going to be adjusted payment levels going forward? Is that understanding correct? And has that taken place?

Yes, it is. Yes. Yes, in addition to the recovery of the past amounts, we reduced our demand charge going forward, to the tune of -- Dave, do you remember the number?

It's $2 million a quarter.

$2 million a quarter.

And that was a full $2 million in the current quarter completed? In other words, that --

Yes. Yes.

(Multiple speakers) started, and it kicked in.

My last question, because I don't think you put it in your script, was -- what are the plans for your investment presentations, non-deal roadshows, et cetera, in the coming several months or few quarters?

Yes. So we've got a couple things coming up in the next quarter. We will be attending the Barclays Institutional Conference in the second week in June. And then, we've got a couple of non-deal roadshows with Macquarie's and RBC in June. And then, looking way out, we've got -- we'll be attending the Jefferies Industrial Conference in August and the Credit Suisse Fixed Income Conference -- it's a ways out, but September. So fairly full schedule for the next few months.

Great. Well, if you come out west to the Bay Area, please let us know.

Will do.

(Operator Instructions) John Pace, Stone Harbor Investment Partners.

I just had a couple questions. First of all, your FX loss that you experienced this quarter on the beginning of quarter to ended quarter shifts in FX rates, it would seem that you probably had a gain in the fourth quarter as the dollar strengthened against both currencies by levels at least half as much as what happened in the first quarter. Do you have a number around that gain that you might've seen in the fourth quarter from that effect?

Yes, between four and five.

Okay. Four and five?

You got it right, John. Yes, four to five.

Great. All right.

And then, also, I just wanted to draw a little more of a box around the potential cost [to] Celgar from this outage. The past few years, your cost per day for the Celgar outages have averaged kind of between one and 1.5 a day. Would you say this one -- there was maintenance work for 18 days -- do you think that's toward the low or the higher end of that range?

Yes, you can't really do that when you have an extension. So for the maintenance shut, you've got all that intense work. You've got contractors onsite, you're doing a lot of different jobs. And that's what you're doing in your 12 days.

And then, imagine that early on in that process, we looked into one of our flash tanks and saw corrosion that required some overlay work. And the time to do the overlay work is going to extend beyond the time of the shut.

So the first thing you do is you say -- okay, we're going to limit overtime, nobody's working on Sundays, that kind of stuff. You try to bring the cost down, because you've got that extra time.

But then you get things done. And you've got one job that kind of carries on, that's your bottleneck job. And so you look to accelerate other jobs that you might've been thinking of doing a year later, or you keep -- you take advantage of the time the best you can. So the cost comes down quite a bit on those days.

And then we had the startup issues where we started making some pulp, and we produced some pulp. And then you put some on the floor, and you have to shut it down for a while, clean it up, and then start it up again.

So you can't -- it's not a linear cost equation, unfortunately. So I can't give (multiple speakers) --

Right. I know last year, the first quarter, I think it was like a 12-day outage cost, $18 million, is more intense than expected. I mean, would you say this shouldn't be as intense as that outage was in terms of cost?

Well, John, it was a big shut. We got a lot of work done in it. So it's -- I don't have a number here. We haven't disclosed it. But it was a really complete, good maintenance shut.

All right, okay. So then looking forward to 2Q, just kind of -- pulp prices hold steady. It looks like it's going to be a pretty heavy maintenance cost quarter. Mean, I assume we should see some pretty significant downward pressure on EBITDA for 2Q relative to 1Q. Would that be correct?

Yes, you're pushing me into guidance, and I -- we as a policy don't do guidance.

I know.

I think all of our analysts would expect to see a slight deterioration of our EBITDA in Q2.

Okay. Great. Thanks, Dave, I appreciate it.

You bet.

There are no further questions in the queue. I pass the call over to David Gandossi.

Okay. Well thanks, Chris. And thanks, everyone, for joining us on the call today. Look forward to speaking to you all again next quarter.

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