Mercer International Inc. Q1 2010 Earnings Call Transcript

Mercer International Inc. Q1 2010 Earnings Call Transcript
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Mercer International Inc. (MERC)

Q1 2010 Earnings Conference Call

May 4, 2010 10:00 AM ET

Executives

Eric Boyriven – IR

David Gandossi – EVP and CFO

Jimmy Lee – Chairman, President and CEO

Analysts

Amil Safino [ph] – Cantor Fitzgerald

Bruce Klein – Credit Suisse

Bill Hoffman – RBC Capital Markets

Joe Stivaletti – Goldman Sachs

Andrew Shapiro – Lawndale Capital

Rick Sherman – Oppenheimer

DeForest Hinman – Walthausen & Company

Presentation

Operator

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Previous Statements by MERC
» Mercer Q2 2009 Earnings Call Transcript
» Mercer International Inc. Q3 2008 Earnings Call Transcript
» Mercer International, Inc. Q4 2008 Earnings Call Transcript

Good morning. My name is Christie and I will be your conference operator today. At this time I would like to welcome everyone to the Mercer International First Quarter 2010 Earnings Conference call (Operators Instructions). Thank you, I will now turn today’s conference over to Mr. Eric Boyriven of FD.

Eric Boyriven

Thank you. Good morning and welcome to the Mercer International 2010 first quarter earnings conference call. Management will begin with formal remarks, after which we will take your questions. Please note that in this morning’s conference call, management will make forward looking statements that were made in the press release. According to the safe harbor provisions of the private securities litigation reform act of 1995, I would like to call your attention to the risks related to these statements, which are more fully described in the press release and with the Company’s filings with the Securities and Exchange Commission.

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

David Gandossi

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

Let me begin with a few comments about our financial performance. As expected we experienced a significant improvement in our results, driven primarily by a remarkably tight pulp market. We completed a major maintenance shut in the quarter and after removing the impact of this shut Q1, 2010 was also strong one from our productivity perspective.

In addition to steady price improvements in the quarter, the Euro has been under a great deal of pressure giving us an additional boost. As you all have seen in the press release, we reported a net loss of EUR7.5 million for the quarter or EUR0.21 per share compared to a net loss of EUR39 million or EUR1.08 per share in the same quarter of 2009. The loss arises due to the mark-to-market valuations of our fixed interest rate swap and the US dollar-denominated debt, were not for these non-cash items EPS would have been a positive EUR0.12.

We recorded EBITDA of EUR31.8 million in the quarter compared to EUR23.5 million in the fourth quarter of 2009 and US dollar equivalents this is about EUR44 million of EBITDA in the current quarter, compared to about $33 million in Q4. The most significant contributor to the increase in EBITDA was the improvement in pulp pricing and the weaker Euro and was partially offset by the impact of higher fiber prices in Europe.

We also completed a plant maintenance shut at Stendal during the quarter. The shut itself lasted 10 days and positions the mill well to run full for two months before its next maintenance shut. If I can switch to cash flow for a moment, overall our cash position is marginally lower that at yearend. Outflows included EUR16 million to the seasonal increases in working capital, EUR6 million of high return capital spending and EUR23 million of interest and debt payments.

These outflows were offset by EUR32 million from EBITDA and about EUR9 million of cash and flow from the Canadian government’s Green Transformation program to fund Celgar’s Green Energy Project. We have EUR29 million of un-drawn revolvers available at Rosenthal and EUR10 million at Celgar. We currently have cash of about EUR49 million which is comprises of partially EUR26 million for the restricted group and EUR23 million at Stendal.

As you know in January we completed a second exchange of almost all of the remaining 2010 convertible notes for the new notes with identical terms of those issued in the December exchange. After this second transaction we now have only $2.3 million of the old 2010 notes remaining. This latest exchange gave rise to a EUR9,000 loss which will be reversed through interest expense in 2010 and 11 as the debt is accreted down to a face value.

The refinancing of our old convertible notes was an important step in improving evaluation of all of our securities. Considering a lag effect of pulp price increases achieved throughout the first quarter and for April and May, we’re expecting improved financial performance in the quarters to come. So with that quick overview of the financials let me turn the call over to Jimmy to talk about our operational market and strategic developments.

Jimmy Lee

Thanks David. Good morning everyone. As David mentioned, after pretty difficult year 2009, 2010 has started well for us. We were generally pleased with the progress in the quarter particularly in light of tightening fiber markets and our scheduled maintenance shut at Stendal and I remain satisfied with the rate of construction at our Celgar Green Energy Project.

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