Mercer International Inc (MERC) 2022 Q4 法說會逐字稿

Good morning, and welcome to Mercer International's Fourth Quarter 2022 Earnings Conference Call. On the call today is Juan Carlos Bueno, President and Chief Executive Officer of Mercer International; with David Ure, Senior Vice President, Chief Financial Officer and Secretary. I will now hand the call over to David Ure.

Good morning, everyone. Thanks for joining us today. I will begin by touching on the financial and operating highlights of the fourth quarter before turning the call to Juan Carlos for further color on the markets, our capital plan as well as our strategic initiatives. Also, for those of you that have joined today's call by telephone, there is a presentation material that we've attached to the Investors section of our website.

But before turning to our results, I'd like to remind you 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.

This quarter, we achieved EBITDA of approximately $96 million compared to Q3 EBITDA of roughly $141 million. This solid Q4 result was a consequence of improved pulp production at our Stendal mill as we returned the mill to near full production after the Q3 wood yard fire, along with higher pulp and energy sales volumes. This was more than offset by lower energy sales realizations in Europe due to the recently implemented energy price cap along with considerably higher pulp fiber and chemical costs.

In the 2022 fiscal year, we achieved record EBITDA of almost $537 million, driven by strong pricing for our products through most of 2022, a relatively strong U.S. dollar compared to the euro and Canadian dollar, along with improved pulp sales volumes. Currently, Stendal is approaching 100% of capacity, and we expect the final repairs to the fire damaged wood yard infrastructure to be complete in Q2. The loss is covered by our insurance program, and we expect it to be settled later in 2023 once permanent repairs are complete. As of today, we have received advance payments from our insurer totaling roughly $18 million. After giving consideration to our planned 21-day shut at Stendal in November, our mills ran well this quarter when compared to Q3 when we had 17 days of (inaudible) at our Rosenthal mill.

Our pulp segment contributed quarterly EBITDA of roughly $98 million and our solid wood segment, which includes our Friesau lumber operation, along with the newly acquired Torgau mill and our Spokane mass timber startup contributed quarterly EBITDA of about $5 million. You can find additional segment disclosures in our Form 10-K, which can be found on our website and that of the SEC.

Supply constraints from Western Canadian producers, coupled with increased demand from China helped keep Q4 pricing relatively stable in our markets with only pricing declines. European NBSK list prices averaged $1,442 per tonne in the current quarter compared to $1,500 per tonne in Q3. In China, the Q4 average NBSK net price was $920 per tonne, down $49 from Q3. The price gap between NBSK and hardwood narrowed slightly in the quarter due to hardwood prices decreasing less than NBSK prices with the average Q4 net eucalyptus hardwood price in China at $837 per tonne, down $18 from Q3. In total, average pulp sales realization movements negatively impacted EBITDA by almost $7 million compared to the prior quarter.

Overall, our average lumber realizations fell sharply in Q4 due to relative weakness in both the U.S. and European markets. The Random Lengths U.S. for Western SPF 2 and better averaged $410 per 1,000 board feet in Q4, which was down $170 from last quarter. Our average European sales realizations were down approximately $118 per 1,000 compared to Q3. Today, the benchmark lumber price in the U.S. is currently $455 per 1,000 board feet. Our electricity sales reflect our strong generation along with elevated prices in Europe, where Q4 prices were in the range of $200 per megawatt hour. Exports to the grid totaled about 222 gigawatt hours in the quarter, which was up relative to Q3, principally the result of Stendal's return to near full production and the addition of Torgau.

The energy situation in Europe changed significantly in the quarter. The December implementation of an energy price cap effectively reduced the net realized price to about $120 per megawatt hour, which, while lower than Q3 remains much higher than our historical realizations prior to 2022. Q4 reflects a full quarter of results from the Q3 acquisition of the Torgau mill. However, the net earnings impact was nascent this quarter due to a GAAP requirement to mark-to-market acquired inventories and order books, in this case, for pellets and pallets to the current market price, a treatment that removes most of the margin from the first full quarter of ownership. While shipping pallet and heating pellet prices are currently somewhat depressed, we expect a modest contribution to earnings from Torgau in Q1.

We reported consolidated net income of almost $20 million for the quarter or $0.30 per basic share compared to net income of $67 million or $1.01 per basic share in Q3. For the full year, we are reporting record consolidated net income of $247 million or $3.74 per basic share. We consumed about $8 million of cash in the quarter compared to Q3 cash generation, which totaled about $27 million after adjusting for the acquisition of the sawmill and the related draw on our German revolving green credit facility in Q3. The reduction in cash generation is due to lower EBITDA, along with working capital movements to reflect higher inventories.

Capital spending in the quarter was about $50 million and totaled $179 million for the full year. Looking ahead to 2023, we are targeting CapEx of about USD175 million to USD200 million in our operations this year. Juan Carlos will add more color on our CapEx program in a moment.

At the end of the quarter, our liquidity position increased slightly from Q3 and totaled about $636 million, comprised of $354 million of cash and $282 million of undrawn revolvers, including our new EUR300 million sustainability-linked facility. Our quarter end liquidity position was up about $15 million from the previous quarter due to increased availability on our credit facilities.

And as you would have noticed from our press release, our Board has approved a quarterly dividend of $0.075 per share for shareholders of record on March 29, 2023, for which payment will be made on April 5, 2023. That ends my overview of the financial results, and I'll now turn the call to Juan Carlos.

Thanks, Dave.

Overall, I'm pleased with our fourth quarter operating results as it provided a solid conclusion to a record year for our company. Operationally, we ran well, and our production and sales volume were up for all our products compared to Q3, and we returned our Stendal mill to almost full capacity midway through the quarter. As we expected, the pulp markets weakened, but only slightly. Lumber markets weakened more significantly in the quarter, but we are beginning to see signs that this market will improve. As Dave highlighted, there were significant changes in energy policy in Germany during the quarter, which reduced our electricity revenue compared to Q3. But while this top line reduction came quickly, lower cost for natural gas, chemicals and pulpwood, are now following and will materialize in our results in the next few quarters.

We made good progress with the integration of the Torgausawmill, coordinating the logistics for the various fiber and wood transfers we envision takes time, and I'm excited with our progress to date with regards to our targeted synergies. On an annualized basis, we achieved approximately $6 million of synergies in Q4. And once we fully are integrated, we expect to achieve about $16 million per year of synergies. I'm also pleased with the progress we're making in developing our mass timber business. Our design and engineering teams are now actively bidding on numerous mass timber products, and we have currently over 50 projects in various stages of evaluation or bid. And many are complex projects, we will take time to negotiate and finalize. But we expect a few of these already to be contracted in the coming days and weeks.

As I mentioned, global pulp markets remained resilient through the fourth quarter with prices down only slightly. There are a number of factors currently in the NBSK space, including some softness in demand in Europe related to weakness in economic conditions brought on by the energy crisis there. At the same time, we're seeing considerable demand improvement from China as COVID restrictions wane and shipping channels reopen. And of course, in recent months, reduced supply is now beginning to have a material impact as paper producers look to increase their pulp inventories. So the NBSK market has seen the equivalent of 2 pulp mills permanently removed between 2022 and early '23. And in addition, temporary curtailments driven by fiber supply constraints in Western Canada are also impacting the market. This includes our Cariboo joint venture, where we're taking 2 months of downtime this spring and summer due to the lack of fiber. Hardwood prices also held their own in the quarter, although we are expecting some softness in the next few quarters as significant new capacity comes online in '23, which may be detrimental to this market. It will take some time for the market to digest these volumes, and we expect the hardwood softwood price gap could expand over time.

The fourth quarter lumber market pricing reflected weakening of both the U.S. and European markets. On average, our lumber realizations were down in Q4, [25%] from Q3. The negative market sentiment is principally the result of uncertainty created by rising mortgage rates and weak economic indicators. The U.S. market continues to be volatile, but we are seeing some positive momentum. And despite the volatility today, we believe the midterm backdrop for U.S. lumber conditions remains positive with low lumber channel inventories as we approach the spring construction season, the large number of sawmill curtailments, relatively low housing stock and constructive homeowner demographics putting positive pressure on the supply-demand fundamentals of this market. We will continue to watch and to match our mix of lumber products and customers to current market conditions. In Q4, 32% of our lumber sales volumes were in the U.S. market.

The majority of the remainder of our sales were in the European market. Also, we saw our logistics channels continuing to improve, which resulted in a modest decrease in our freight costs. High fuel costs are keeping freight costs higher than what we hoped for, but the improvement allows us to be more cost effective like reducing our reliance on higher cost trucking solution. In Q4, we saw pulpwood prices peak before reducing partway through the quarter. The high pulp wood costs were mainly driven by demand from the energy sector as users were looking for cheaper forms of energy. Looking ahead to Q1, we are anticipating downward pulpwood pricing pressure in Europe. While European sawlog demand and supply are in balance and as a result, we expect sawlog pricing to modestly decrease in Q1.

Now in Western Canada, decreased log harvesting levels and related sawmill curtailments are putting upward pressure on pulpwood prices. Not surprisingly, these factors are positively impacting fiber supply. And as mentioned, our Cariboo joint venture pulp mill has announced a curtailment due to lack of fiber, and we have also seen fiber concerns driving the recent announcement of the permanent closure of another interior BC pulp mill.

In 2022, we invested almost $180 million in our operations. The majority of this going into high-return projects like our Celgar and Peace River mills. These projects will generate high returns in the form of lower wood costs and have considerable carbon reduction attributes, which will help us achieve our carbon reduction goals. Looking to 2023, we expect to invest between USD175 million and USD200 million in our mills, as Dave had mentioned before, and we will again be investing heavily in high-return projects. This will include the lignin development center and extraction pilot plant and the $27 million expansion project, our Spokane mass timber plant. The Spokane plant investments will allow the state-of-the-art facility to fully utilize a more varied raw material mix, add glulam to our product portfolio and (inaudible) joint production. This is a first step in what will ultimately be an expansion of CFT capacity in anticipation of our efforts to steadily increase our order book for mass timber products.

As we think about climate change and the rapid shift occurring regarding reducing carbon emissions, products like lignin, mass timber, green energy, extract lumber and pulp are all products that will play increasingly important roles in displacing carbon-intensive products, products like concrete and steel for construction, plastic packaging, fossil fuel generated electricity and synthetic fragrances and flavors even synthetic textiles. We're committed to our 2030 carbon reduction targets and believe our products form part of the climate change solution. In fact, we believe that in the fullness of time, demand for low-carbon products will dramatically increase as the world looks for solutions to reduce its carbon emissions. To that end, going forward, you will see us looking to grow these areas of our business. We remain bullish on the long-term value of pulp, but to bring more balance to our business, solid wood and extracted we'll grow more quickly.

Also, to remind listeners, we remain committed to our carbon emission reduction targets. I encourage you to look at our website for more details. We are soaked in our ability to meet these targets that we converted our German revolving credit facility to a sustainability-linked loan, making us part of a small group of wood product producers willing to invest in carbon emission reduction targets in favor of modest reductions in our cost of borrowing.

So that's it. Thanks for listening, and I will now turn the call back to Sarah for questions.

(Operator Instructions) The first question comes from the line of Kasia Kopytek from TD Securities.

Apologies on demand. I think I have a bad connection. Dave, you mentioned $18 million in insurance proceeds to date. How much was in Q4?

Yes, it was about a 6 cash.

Okay. So most of it had been received in Q3 then, I take it?

Yes, that's right. That's right. So there'll be a little bit more coming, but the insurance here has actually been quite efficient. So the insurer has been providing us advances that sort of match our expenditures. So it's generally been coming in as the work has been done.

Got it. So maybe just a single-digit few million coming in Q1. Is that fair?

I think that's fair, yes.

Great. And Dave, can you quantify the mark-to-market on the inventories, how much that impacted EBITDA in the quarter?

Yes... Roughly $10 million. A

Nd the Q4 depreciation rate, is that a good rate to use going forward as a run rate for modeling purposes?

Yes, that should be all right.

And then, Dave, if you could just give a maintenance outlook for 2023. I know it's in your 10-K, but if you could specify between the mills, that would be great.

Okay. So in Q1, we will have the shut at Celgar, small shut at Celgar in Q2, we will have larger shuts so a fairly substantial typical shut Peace River for a couple of weeks. We also have a shut at Cariboo in Q2. Q3, we will have our typical 2-week shut at Rosenthal and Celgar will have their major shut in Q4, sort of a 2- to 3-week shut in Q4.

What are you seeing for paper maker demand right now? And what are your order books looking like?

It's Juan, Kasia, thanks for the question. In paper demand, what we're seeing is obviously a slowdown in Europe, in the European markets. Those have been the ones that have suffered a bit the most since, I would say, almost end of Q3 and the beginning of Q4. But now what we see compensating that is obviously the China coming back. So there's a little bit of a balance there in terms of how the paper market is moving.

Thanks for that context. So last one for me. You had Torgau for a little over a quarter. How is that going relative to your expectations? Any context you could provide there? Any ways on progress to date?

Very good and very happy about the progress in Torgau, particularly with the synergies that we're already able to extract in very little time. When we think about this, we just took over 1st of October. And looking at the progress that we've made, moving all sorts of products around our mills in Germany has been very, very (inaudible), and as we unlock further capacity at Torgau, we expect those synergies just to increase. What we're aiming for, obviously, is to increase our lumber production over there. But at the same time, we have benefits when it comes to the movement of wood chips or the movement of fines, sawdust and whatnot. So it's a very positive addition to our overall portfolio.

Thanks very much, everyone. I appreciate the context. I'll get back in the queue.

The next question comes from the line of Paul Quinn from RBC Capital Markets.

I guess maybe this is for Dave. But David, if you could just give me a rough cost of the shut at Cariboo and Celgar, how should we model that in?

For 2023, Paul?

Yes. Just the sort of fiber-related shuts that you're taking in both mills?

Okay. So not the maintenance shuts, you're talking about the curtailments.

Right. Yes,

I don't think we can disclose that. But I can tell you that the reason you do it is because that incremental fiber that is available to operate the mill is higher than what it would take to just to cover your fixed costs. So generally, that's the call we make.

Okay. And then... Yes, you don't have the specifics. What about overall fiber costs in general? I mean, you're obviously seeing a big price increase in Europe, but I suspect that's also acting in BC, Alberta pretty flat?

Paul, this is Juan. Alberta is, we have seen a bit of increase but nothing too dramatic. Remember, in Alberta (inaudible) that we work with, we have quite a significant amount of wood at our disposal. So it's a very different situation from what we experienced in British Columbia. Now having said that, obviously, also in Germany, we had over the quarter a very high increase in wood costs associated with all the energy crisis and all the scale that was going on during that period of time. But obviously, that has now eased down significantly. And actually, what we're seeing today is an important reduction of the cost of the wood chips in Germany, which obviously is very, very favorable to us, not yet to the level that we would want it to be, but clearly heading in the right direction, and we expect that to continue going forward. So I think that's very positive overall. And in the case of BC, obviously, with the continuous curtailments of sawmills, that is putting a significant strain in the whole system. And we'll see now that this other pulp mill has been shut down as was announced recently. Obviously, that creates a little bit more balance, but yet, we have to see how the development goes for the coming months.

Okay. And then just longer term on fiber availability, especially in BC because it seems most constrained there. What do you think is a position there to mills that you've got in that jurisdiction? Are they going to be able to be fibered up going forward? Or is it going to be rolling downtimes because of lack of residuals?

If I talk about Celgar specifically, there's a couple of things that make Celgar probably in a stronger position than other pulp mills that are in BC and its geographic location since we're close to the U.S. border. We have the advantage of being able to tap into the U.S. market for chips. We're actively pursuing that and now basically setting up the proper logistics that would allow us to flow to have a good flow of chips from the U.S. in case the BC continues to put more and more pressure on this. So that way, we can protect ourselves from further issues in British Columbia. I think that's something very positive for Celgar, number one. And number two, we have the wood room that we've announced and that will be ready not only in Peace River, but also in Celgar later than the year. We expect that wood room to be up and running by the end of the year. And the fact that we are able to bring that wood room in play that basically reduces the dependence that we have on sawmill residuals. So that's another very important step to make sure that Celgar runs without interruptions once those things are in place. In Cariboo, it's a little bit different situation. We don't have those options of the wood room or the proximity to the U.S. But together with our partners, we're working very diligently in making sure that we secure the necessary wood that is required for the mill. And we'll see how the development of this year works but we're actively pursuing options to see if we can reduce the 60-day short curtailments that we've announced before. So we're in the works on that.

All right. Dave, maybe over to you, just that USD175 million to USD200 million in CapEx. How do you split that between maintenance and then the amount that you're spending on high return targets?

Yes. That's always a tricky one because one person's definition of MOB might be different than another's, but it's probably a pretty good mix of, it's probably close to 50-50. So it's got some terrific projects like Juan Carlos had mentioned. This will be the year that we do the bulk of the work on the Spokane CLT plant. So looking for some expansion there. We're also doing some work at Torgau, some early optimization work to increase the lumber production at Torgau. And of course, the wood room that Juan Carlos talked about at Celgar. We're also doing the same thing at Peace River, which is nearing completion, and both of these projects are extremely high return. But I would say it's probably roughly 50-50.

Okay. And just lastly, sorry, I haven't been on these calls for a while, just a conflict, but Paper Excellence is close to somewhere through acquisition of Resolute, Resolute assets divest (inaudible) any interest in those mills?

Not really, to be honest, Paul. I think we're happy with what we have, and we'll continue to focus on those.

The next question comes from the line of Richard Stevens from [Amundi].

I just wanted to follow up on one statement. I thought I heard you guys say just to make sure I fully understand. I think you had new capacity coming online in 2023, and then it would take some time to absorb this capacity. Is that capacity actually coming out of China. So while you're importing right now into China as China opens up, that they will be a net exporter of product and more than likely that product will end up into Europe. Is that fair to say?

I believe, Richard, what we were referring to an additional capacity was more on the NBHK market. So hardwood market that we'll see a very significant capacity coming through during the year. That capacity is coming basically from South America with Brazil and Uruguay coming and Chile coming to play. And that's something that during the course of this year and next year, will add quite a significant amount of hardwood pulp into the market. So the destination of that, obviously, as you will say, China is going to be a significant market for it. I would say that it's not the most predominant one, the offtaker of a large part of that and that's why we made the statement that we believe that NBHK is going to be going through probably a bit tougher cycle as that amount of capacity is being absorbed by the market. And one thing that I would comment though is usually when those things happen, it's kind of phased in. It's not that you have 2 million tonnes of pulp dumped in the market from one day to another. So those things are usually based in a way that it sinks a little bit easy to go through it. And as they ramp up their production. But obviously, it's an important factor I think, for the end of this year when some of those things are fully up and running and even more in 2024.

The next question comes from the line of Andrew Kuske from Credit Suisse.

I guess the first question is for Juan Carlos, and it's really along the lines of the balancing the business, and you mentioned this earlier on about your balance of the business. How do you think about the business mix for Mercer on a longer-term basis? And whether we're talking 5 years out, 10 years out, how do you think about that?

Thank you, Andrew. Yes, we're very, very focused on that specific item that you just mentioned on balancing better our company and diverse it so that it's not so heavily dependent on pulp overall. We believe that there's still very good opportunities for us to grow in pulp, but we will pursue higher opportunities for growth in lumber and CLT and not only that, but also in our biomaterials space with lignin and as Dave mentioned, and I think I mentioned as well, we have this already (inaudible) investment going through in 2023. If you ask me, looking 10 years ahead, I would hope to see a company that is much more balanced. And by that, I wouldn't be surprised if pulp is anywhere below 40% and lumber is anywhere above 1/3 of our company and some of these biomaterials start taking some 2-digit space into this mix. So that would be how I would paint it for the future with lumber and pulp almost a balance.

Okay. That's very helpful. And then, I guess, the second question on sort of thinking about the same kind of time frame goes to Dave. You don't really have any near-term matures at all. You've been very adept and this isn't to be patronizing, but you've been very adept over the years of sort of flexing things, levering up when appropriate and then paying down debt and being well positioned generally through the cycle. How do you think about the evolution of the balance sheet? If the business mix changes, do you move from high-yield issuer into investment grade and just have different market access points?

Yes. No. We do think about that a lot, even though we don't have any near-term maturities. And I think we've been pretty fortunate to have the kind of that core foundational unsecured, no covenants, very flexible financing structure in the past. But that may not be the place maybe as we get closer to the first maturity, which is in 2026. We'll have to see what the market conditions are for other sources of financing and a lot can change in the next year as well. As you know, we've been generating, we've got a pretty good cash flow, pretty good operating cash flow. And so I think we're going to have the opportunities if the markets aren't there to roll those facilities over, we'll have the opportunity to do something else. And that may include shrinking the debt up, but it may include, we'll look at the other sources of financing at the time. And of course, we're always balancing that with what we have in the pipeline for CapEx or M&A opportunities. As you know, we've had a little bit of extra cash on the balance sheet at times in the last couple of years, and we've deployed that to pick up a couple of assets in the Spokane facility and recently the Torgau facility. I think we may have struggled to get those assets if we didn't have a little bit of dry powder on the balance sheet. So I think you'll see us at times be a little bit conservative or what might look outwards to be a little bit conservative to make sure that if we do come across an opportunity that aligns with the strategy that Juan Carlos was talking about that we're able to jump on those opportunities quickly. Sorry, Andrew, that's a bit of a ramble, but yes, there's a lot of moving parts, but we're paying a lot of attention to that, particularly over the next year or 2.

(Operator Instructions) The next question comes from DeForest Hinman as a private investor.

Can you just give us an update on the wood rooms? I think you had spoken about these at length in the past and talked about the opportunity for grant proceeds tied to the completion of those. Is that still possible? And what would the quantity of the proceeds be?

Yes, the wood rooms are progressing well. One that is very, very close to completion is the one in Peace River. We expect that to be concluded and starting up already early in the second quarter. So we're already halfway through the commissioning phase. So that is obviously of high expectations, and we've gotten good support from from the government into that project. So that to us is very, very important, as we mentioned before, (inaudible) and that one we need to associate it with there's some work that needs to be done, and we want to do it at the time of our shutdown. As Dave mentioned earlier, that shutdown is scheduled for the fourth quarter for October. So it is linked to the fourth quarter shutdown for us to be entering to that commissioning phase in Celgar. As far as the values, Dave, do you remember how much is... which one...

Round numbers, the River Peace River wood room is in the range of USD50 million to USD60 million, and we'll start up in the the next few months here, and the Celgar one is about in the range of USD30 million to USD40 million.

And I think there was talk in the past that there would be some grants associated with that. Are there still grants tied to those?

Yes, there are. Yes. So those numbers that I'm referring to, those are net, net of grants.

Okay. And then second question on, can you just give everyone an update in terms of where we stand with the cross-laminated timber? Obviously, you've been on this asset out of bankruptcy. There was some commentary. It was a really nice facility, brand new, lots of equipment. lots of capacity. We started doing some finger joint work. We've added a pallet business in there as well. It's just a little confusing given how the mix of that segment has changed. And now you've talked about some investments to increase capacity. So taking a big step back, what is the profit outlook for that business going forward either over the next 1 to 2 years? And what's the targeted return on investment for that Spokane facility, just to help everyone understand what does that building what's it able to do in our minds?

Absolutely. As I mentioned earlier, we're very happy with the way things are evolving there. And when I say that, despite the fact that materially in our revenue, it doesn't show up yet. What we see is a tremendous amount of project and bidding work that we're doing with the team that we have assembled in Vancouver. And that is what gives us extremely high confidence about the future of this business. We have several projects, as I mentioned earlier that are in the bidding process. Some of them in the very, very final stages and with very high confidence that we will close on a few that are very significant and that we'll make a mark for, let's say, the full load of our CLT facility, and that is very important. That's why, as we were seeing already this unraveling, even though we've only been into this, as you well said, for a short period of time, and this is coming out of bankruptcy almost considered, for us, it's considered as a start-up. And that's why we decided to make the investments ahead of time because we see the need for that facility to develop itself for even though it was state-of-the-art technology but obviously, there's opportunities to do more. One of the things that we are adding is the capacity to put glulam in there, glulam and CLT as we phase many of these projects that we're bidding on, we see more and more the need of those 2 going together in many of the construction projects that we're working on. So having the facility being capable to provide both offerings is obviously something that would be very attractive to our customers and hence, I decided to go through with that investment.

In terms of your question of how material it can be going forward, without getting into committing to numbers, I would say that we would be, by the end of '24, we should be much closer to rounding values in closer to the $100 million profit overall in this facility. So that is our aim, and we see a very strong likelihood that we will be able to achieve that growth. So it is important that we talk about how those projects materialize and we will be sharing more of that as we go into the future.

Okay. That's some interesting color. And in the past, we've had some credit facilities tied to individual locations if we're going to be doing type of profit number that you put out there for 2024 in that ballpark, I mean, does that facility warrant its own credit structure associated with it...

Yes, I think your question, will it be big enough to support its own facility into force. We'll have to wait and see at the moment. We'll take that as it comes. Possibly could. Yes, it possibly could. We'll see how it develops. And as Juan Carlos had mentioned, we're pretty bullish about it and we'll probably, if it goes the way we think it's going to go, we're going to invest more in that business and it may need some financing, and that might be appropriate to do. But at the moment, we're covering that with our existing finance structure and cash.

And just one thing to make sure that because I don't know if I misspoke, but when we look on the value of this and the expectations for it for next year 2024, that I mentioned closer to $100 million, I refer revenue more, not profitability.

Okay. And then last question on Friesau. Can you give us an update in terms of where we stand on capital expenditures there? I believe at one point, there was a fair amount of plainer capacity, sorter capacity going in, and I think there was some thought of additional either sorting or [plaining] capacity, I can't remember exactly which one, but can you just give us an update in terms of how we're looking at CapEx at that facility at this point in time?

Well, the majority of the CapEx that was intended for Friesau after acquisition a few years back has now been concluded. We've made very good progress on it. So there's very little that is left yet to be executed there. Now the focus is now turning on the CapEx that we want to put into Torgau as we see a tremendous amount of potential in that facility. Back to your original question about CLT, you mentioned that or made some comment associated with pallets. And just to be clear, our Spokane facility in Washington is not doing any of that. It is just focused on CLT, glulam and finger joint. Now the acquisition of Torgau, that's where the pallet and the pellet business comes in. And that's obviously something that we intend to maintain. But what we want to grow in that facility is the lumber output. And that's a facility that has 4 sawmills sawlines and only 2 of them are being used in a proper way. So we know that there's a tremendous amount of potential to be extracted. That's why we want to direct our investment more towards Torgau as we unlock the potential that, that facility really has.

As there are no further questions, I will now hand the call back to Juan Carlos for closing remarks.

Okay. Thank you, Sarah, and thank you all on our call. Dave and I are available to talk more at any time so don't hesitate to call any one of us. Otherwise, we look forward to speaking to you again on our next earnings call in May. Bye for now.

Thank you for joining today's call. You may now disconnect your lines.