Oct 31, 2014
Executives
Jimmy Lee - President and CEO David Gandossi - Executive Vice President, CFO and Secretary
Analysts
Bill Hoffman - RBC Capital Markets Richard Koos – Jefferies Bruce Klein - Credit Suisse Sean Steuart - TD Securities Andrew Kuske - Credit Suisse Andrew Shapiro - Lawndale Capital Amir Patel - RBC Capital Markets George Berman - J.P. Turner & Company Sean Sauler - Redwood Capital Management
Operator
Good morning. And welcome to Mercer International’s Third Quarter 2014 Earnings Conference Call.
On the call today is Jimmy Lee, President and Chief Executive Officer of Mercer International; and David Gandossi, Executive Vice President, Chief Financial Officer and Secretary. I will now hand the call over to David Gandossi.
David Gandossi
Thank you, Steve. As usual, I will begin with formal remarks, after which I 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 with the company’s filings with the Securities and Exchange Commission.
So I am going to cover some of the key financial aspects of the quarter and then I am going to pass the call over to Jimmy. In Q3, we achieved EBITDA of $67.6 million, compared to $41.9 million in Q2, an increase of $25.7 million.
In Q3 pulp pricing was essentially flat in China and North America, while at the end of the quarter list prices in Europe were up slightly to $935 per ton. However relative to Q2, our Q3 results benefitted from the impact of the stronger US dollar on our Euro and Canadian dollar costs as well as lower German fiber costs.
In addition, our major maintenance costs were down approximately $12.1 million compared to Q2 due to Rosenthal’s third quarter shut will be much smaller than the combination of Celgar’s and Stendal’s Q2 shuts. Despite the Rosenthal mill being down for 10 days for major maintenance in Q3, our mills achieved near record production this quarter.
We also had strong sales volumes this quarter which resulted in a decrease in our finished goods inventory volumes relative to Q2. We reported net income of $88.3 million for the quarter or $1.38 per basic share compared to net income of $0.6 million or $0.01 per basic share in Q2.
Our 3 net income includes a non-cash annualized gain of approximately $3.4 million on a mark-to-market valuation of our fixed interest rate swap. Our Q3 net income also includes a non-cash gain on the settlement of debt totaling approximately $31.9 million.
This gain is a result of the acquisition of the all of the shareholder loans of Stendal’s non-controlling shareholder for less than their book value. In addition, we regularly review our deferred tax positions and in Q3 based on the development of our taxable earnings and our estimate of future taxable earnings, we concluded that it was more likely than not that we would use certain tax assets and as a result we recognized 31.3 million of deferred tax assets at our Stendal mill.
The U.S. GAAP IFRS differences relating to major maintenance had an impact this quarter when comparing our EBITDA to those of many of our competitors.
In Q3 we expensed direct cost of approximately $4.4 million on major maintenance, the majority which would have been eligible for capital treatment under IFRS. Switching to cash flow, our consolidated cash position was essentially flat compared to Q2.
Our cash balance is currently sitting at approximately $239.9 million. Quarterly working capital movements decreased cash by approximately $14.7 million on a net basis, primarily due to an increase in a cash receivable.
Capital expenditures including intangible asset expenditures grew approximately $10.6 million during the quarter of this total the majority was spent on high return capital projects at Rosenthal and Celgar and $1.1 million was spent under development of our new enterprise-wide software system. On the financing side, we paid approximately $14.7 million of scheduled principal payments on Stendal state facilities.
Stendal also received approximately $2 million worth of government grants for its Blue Mill project. The final minor installments of grants are expected in Q4.
Our working capital in the 12-month period ended September 30, excluding cash and short-term debt increased by approximately $22 million to $202 million. The increase is primarily due to lower payables.
In terms of our liquidity, at September 30, 2014, we had approximately €28.4 million of undrawn revolvers available at Rosenthal and approximately $38.3 million available at Celgar. Our $240 million of cash at the end of Q3 was comprised of approximately $137 million for the restricted group and about $103 million at Stendal.
Net debt to equity on a consolidated basis at September 30 is down slightly from Q2 at approximately 1.3 times equity, primarily due to our strong range this quarter combined with the lower debt balance. I would also like to provide a quick update on our project to implement the new enterprise resource planning system or ERP solution.
As I have noted previously, we have selected SAP as it best meets our needs today and in the future. This project is going as planned and is on target to be completed in stages over the next two years.
As previously reported, we have successfully completed an important amendment to Stendal state facilities. The amendment to both the credit facilities were designed to provide the mill with greater financial flexibility.
The amendments include loosening the financial covenant ratios, reducing scheduled principal payments under the Stendal project loan by 50%, while keeping the cash sweep mechanism in place. In connection with these amendments we have provided Stendal with additional capital of $20 million.
During the quarter we also finalized an agreement to acquire all of the shareholder loans and substantially all of the shares and other rights of the non-controlling shareholder in our Stendal Mill for €12.85 million of which €2.85 million were paid in cash and €10 million by way of a one-year payment signed which can be paid in cash or in Mercer common stock as other option. As a result of this transaction, we have adjusted certain equity accounts to reflect our current ownership interest including the loss on the current purchase of equity of approximately $4.8 million.
And as I noted earlier we have recorded a gain on the settlement of debt in our statement of operations totaling approximately $31.9 million. So that ends my overview of the financial results and I’ll now turn the call over to Jimmy.
Jimmy Lee
Thanks, David. Good morning, everyone.
Let me start by saying that overall we are very pleased with our third quarter results. As David noted, compared to Q2 our EBITDA is up approximately $26 million.
Our mills ran well in Q2 and that of course has big effect of lowering operating cost in general, however, the more significant positive impact on EBITDA quarter-over-quarter with the stronger U.S. Dollar, lower major maintenance cost and lower fiber cost in Germany.
In the third quarter, prices in all markets were essentially flat. The quarterly average NBSK prices in Europe and China were $932 and $728 per ton respectively.
While in North America, the quarterly average list price was at $1030 per ton. September NBSK producer inventories were at 27 days, down two days from August.
At these inventory levels, the NBSK market is considered to be below balance. In addition, September hardwood producer inventories are down six days from August at 40 days.
NBSK list prices in October are $1,030 in North America, $935 in Europe and $730 in China. Looking forward we believe that low customer inventories in China will ensure steady demands for Q4 when the paper production traditionally increases.
Similarly in Europe and North America, we believe these markets are in balance and expected to stay in balance through Q4. Overall, we expect pricing in all markets to be essentially flat through Q4.
However, given the low customer inventories and market tightness, anything that’s against winter-related logistical challenges could create upward pricing momentum. 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 specialties in board. Specifically, there are approximately 2.1 million tons of incremental tissue capacity coming online globally in 2014 with approximately 1.1 million tons of this coming online in China.
In addition, there are approximately 2.2 million tons of tissue capacity scheduled to come online in 2015. As we have discussed at length in our previously call, certain analysts continue to predict that the recent hardwood capacity increases will be a drag on NBSK markets.
We know we do not share to few. We continue to believe that a papermaker's ability to substitute hardwood for softwood is limited due to the fact that modern paper machines require certain strength characteristics from the raw materials in order for the machines to run at the high speed that they are designed for.
We believe that the strong NBSK demand we have experienced through 2014 and most notably in the traditionally slower summer months supports our belief. However, given the current market fundamental, we believe that there is a negative market psychology associated with this new hardwood capacity that is holding NBSK pricing back.
We expect this effect will be short-lived due to the strong demand in other markets and low producer inventory levels. Consequently, we don’t believe that a large price gap between hardwood and softwood will be a significant negative impact on NBSK pricing in the near future.
Turning to our pulp production for a moment, Q3 was a solid production quarter for us. All of our mills at grade production including Rosenthal which has had 10-day maintenance shut in the quarter.
In total, we produced approximately 376,000 tons of pulp this quarter, compared to approximately 354,000 tons in the second quarter and approximately 359,000 tons in the third quarter of 2013. Our Q3 production was broken down as follows.
Stendal produced 164,000 tons, Celgar produced 128,000 tons and Rosenthal produced 84,000 tons. In addition, the mills produced approximately 472 gigawatt hours of electricity in the quarter, compared to 446 in Q2 and 444 gigawatt hours in Q3 2013.
Our pulp sales volumes were up in Q3 and totaled approximately 387,000 tons, compared to 357,000 tons in the second quarter and 357,000 tons in Q3 of 2013. Our Q3 sales were up due to the higher sales volume in both the European and the China markets.
Our quarterly sales by mill were as follows. Stendal sold 174,000 tons, Celgar sold 124,000 tons and Rosenthal sold 89,000 tons.
While our Q3 sales by region were Europe 251,000 tons, China 104,000 tons and all other regions combined were 32,000 tons. Now let me take a moment to discuss developments in the wood markets, relative to the second quarter our per ton German fiber cost were down in Q3.
In Europe fiber cost remained at historical high levels. However, throughout the first nine months of 2014 there has been downward price pressure in the fiber markets.
Steady harvesting rates have allowed sawmills to run at high rates, which has increased the supply of chips. In addition, there is a reduced demand on Germany saw and pulp logs from the palate producers and board manufacturers.
Looking forward, we anticipate that our German fiber cost will increase marginally in Q4. We continue to monitor this market closely and are very focused on opportunities to reduce our German fiber costs going forward.
In British Columbia, our Q3 per ton fiber costs were essentially flat this quarter relative to Q2. We anticipate that Celgar's fiber cost will also increase modestly in Q4 due to increased demands from the Coastal Mills.
We're currently satisfied with each mills fiber inventories and expect that it will be able to continue to source the fiber that we need. We regularly get questions about the timing of our annual major maintenance shuts, so highlight that our remaining major maintenance shut in 2014 is at Stendal.
They will have a second of the two-day shuts in Q4, representing approximately 3,700 tons of lost production. However, we are also estimating that Celgar will lose about 4,500 tons of production in Q4 as a result of some plan work on its line kiln.
As David noted, we’re pleased that we’re able to finalize the amendments to both the Stendal loan facility and the project windmill [ph] facility. These amendments will provide the mill with greater financial flexibility going forward and allow management to better focus on operations.
We’re also pleased that we’re able to acquire all of the share lease loans substantially all of the shares through the minority shareholder in our Stendal Mill and other rights. We believe that increasing our equity position in the Stendal Mill will also give the mill more flexibility and allow us to unlock value for our shareholders.
With respect to our NAFTA claim, we continue to expect that our case to be heard in mid 2015 with the decision several months after that. In closing, pricing was essentially flat in Q3.
Historically, we are NBSK price decrease starting this period which we believe highlights the strength of the present NBSK market globally. Presently, we’re forecasting that the European and North American markets will remain steady through Q4.
We remain confident that the new hardwood capacity will not have a significant negative impact on NBSK pricing and we continue to be optimistic about the medium to long-term NBSK supply demand fundamentals, which we foresee as being driven by increased economic standards globally. 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
(Operator Instruction) Your first question comes from the line of Bill Hoffman with RBC Capital Markets. Your line is now open.
Bill Hoffman
Yeah, good morning. Jimmy, can you talk a little bit about – we’re little surprised at the drop in inventories globally during September.
I just want to get a sense on what you guys think it’s happening? Is there any inventory stocking going on sort of speciality grades just for preparation for the winter or anything else like that going on?
- RBC Capital Markets
Yeah, good morning. Jimmy, can you talk a little bit about – we’re little surprised at the drop in inventories globally during September.
I just want to get a sense on what you guys think it’s happening? Is there any inventory stocking going on sort of speciality grades just for preparation for the winter or anything else like that going on?
Jimmy Lee
No. I think that basically there was some hesitancy on the buyers certainly in China initially because of course they all kind of had this feeling that hardwood price declines would of course have an impact in softwood.
As they realized that this was not happening, then I think there was of course a general increase in purchasing which was then up and therefore we had a very big sales volume in shipments through these summer months which traditionally as you know is the weaker periods. So I think what we have seen really is more of a release of that negativity in the sense that now they believe that really the hardwood pricing scenario is really not coming to any reality.
Bill Hoffman
Has there really any changed into your buying patterns even here after October?
- RBC Capital Markets
Has there really any changed into your buying patterns even here after October?
Jimmy Lee
No. What we’re generally seeing certainly in China is we know the buying pattern is more of a ‘n’ user buyer pattern rather than any real speculative component.
And also we’re not seeing a lot of buying by the trading organizations which is logical and we’re seeing fairly steady regular type of demand coming in Europe as well as North America. So there is really more of a, as I say, a sale and ordering pattern which is more industry and consumer related rather than speculative related.
Bill Hoffman - RBC Capital Markets
And then how about just with the additional tissue craft that’s just coming on China, any thoughts from customers over there trying to lock up capacity with you guys or any other with respect to that?
Jimmy Lee
No. I don’t think that there is a general feeling that there is going to be a shortage.
At this point, the buying pattern is certainly from the tissue guys because I think from a business perspective they of course have been doing much better than any of the other paper grades and therefore they are taking opportunity when they can to pick up supply at maybe slightly better pricing if they can. Therefore we are not seeing let’s say a significant purchasing on the part of the tissue guys because generally there is in that market weakness in terms of spot volume being available at a discount to prevailing markets.
Bill Hoffman
Okay. Thank you.
If I just ask one more. Looking forward in the 2015 you just talked about capital projects since you finished a number of major ones here.
What are the plans for next year?
- RBC Capital Markets
Okay. Thank you.
If I just ask one more. Looking forward in the 2015 you just talked about capital projects since you finished a number of major ones here.
What are the plans for next year?
David Gandossi
I hope that –
Jimmy Lee
Yeah. David, maybe you can cover that one.
David Gandossi
Yeah. The guidance would be focusing on higher return projects, nothing really big on the pipeline, total capital in the plan for next year somewhere around $40 million, most of it high return, little bit of carryover from this year.
So like the same situation as the year we’re just completing.
Bill Hoffman
Okay. Thanks.
Appreciate it.
- RBC Capital Markets
Okay. Thanks.
Appreciate it.
Operator
Your next question comes from the line of Richard Koos with Jefferies. Your line is now open.
Richard Koos – Jefferies
Guys, good morning. So first with regards your cash and cash flow, with the restricted group you certainly have a nice reservoir and prices hang up you should be generating a lot of cash flow on a go-forward basis.
What are your priorities for allocating that?
Jimmy Lee
Richard, we have been talking about on several of our previous calls. We’re very interested at the right point in time to consider refinancing Mercer and make and create a more efficient balance sheet and an easier-to-understand capital structure.
We’ve moved from Euro reporting to U.S. dollar that was sort of first step and the simplification process.
Our net debt to EBITDA ratios are getting down into very attractive levels. So we’re continuing to focus on that opportunity and I think discussions of free cash flow will sort of follow that activity.
You know what I’m saying.
Richard Koos – Jefferies
Yeah. Understood.
Okay. And then with regards to the transaction on the equity side for Stendal here, are all of your costs related to that behind you?
You won’t have any more cash coming after that?
Jimmy Lee
Well. We have a—are you referring to the purchase or the interest?
Richard Koos – Jefferies
Yes. I don’t think you’re going to have—
Jimmy Lee
Sorry. I would pick now outstanding that has a one year term on it.
Richard Koos – Jefferies
Yes. Okay.
Jimmy Lee
As I answer that, there is no other cost associated with the acquisitions.
David Gandossi
Right.
Richard Koos – Jefferies
Okay. Very good.
And then I guess lastly from me, you guys ran really well in the third quarter, it seems. Do you believe you can run as well in the fourth quarter as far as production volume?
Jimmy Lee
Yeah. I mean the third quarter was a good quarter, but it wasn’t really what I would call an exceptional quarter from a production perspective.
I mean we did have some minor production problem within all of the mills as normal [ph] I think the Q4 certainly other than the plan, the shutdowns. So far we are running very well on all of these facilities and therefore we believe that the production volume should be comparable.
Richard Koos – Jefferies
Alright. Great.
Thank you very much.
Operator
Your next question comes from the line of Bruce Klein with Credit Suisse. Your line is now open.
Bruce Klein - Credit Suisse
Sorry. Hi, good morning.
Jimmy Lee
Hi.
Bruce Klein - Credit Suisse
Jimmy, you started to touch on—I think that reset on the list price versus the small price which I know is widening the load over the years. I’m wondering, maybe I missed or maybe set up and maybe set up and maybe you can explain a little bit more if anything is going on there.
Secondly, this energy has been strong which is great. What sort of driving that in your outlook there?
I know you have long-term contract to set there but maybe just a little bit more on that.
Jimmy Lee
Yeah. In terms of the energy side, it’s driven by of course overall production efficiency.
So the more profit produced the more steam we can generate and of course more power. And therefore because last quarter was good, of course generally we produced a lot more power.
We’re forecasting moving forward again similar type of situation and I felt that we know that there is a lot of steam that we are not capturing. So there will be further progress in really creating a lot more efficiencies and now steam captures so that we can generate more power from the present amount of black liquor that were already burning.
In terms of what I meant in terms of spot price lists price, what I really meant to say was essentially because there is not lot loose tons being offered to the tissue buyers at the discounts of what they would get. Normally, you’re not seeing a lot of this type of loose volume essentially discounting the market.
What we’re having really is a market condition which is driven by the buyers needing the supply and essentially the suppliers have not a lot of inventories so they are not overly anxious to essentially be discounting whatever they have just to fine buyers. So it seems like a very orderly market right now and you’re not getting a lot of that speculative part where you have in China these trading organizations as you know who potentially buy and then hold them then subsequently sell when prices are good.
So you’re not having the large speculative component in the market.
Bruce Klein - Credit Suisse
I guess I was speaking. I understand what you’re saying but wouldn’t the discount widening argue for the opposite or am I missing something?
Jimmy Lee
No. I mean the list price widening thing is just basically—it’s always been widening.
It’s related to the buyers wanted to keep at certain price and of course the discounts imply a certain pricing regime, but the discount really is not reflecting the market, if you know what I’m saying because you’re not seeing further discounting from the price that we got right now. We’re not increasing that discount just to generate buy.
Bruce Klein - Credit Suisse
Okay. Okay.
I’m good. Okay.
Thank you very much guys.
Operator
Your next question comes from the line of Sean Steuart with TD Securities. Your line is now open.
Sean Steuart - TD Securities
Thanks. Good morning.
Jimmy, I’m wondering if you can talk a little bit more about fiber in Germany and I guess more on your longer term outlook and a couple of questions, I guess what path you’re taking to I guess mitigate the list there over the long run as it just yield optimisation at the mills? And then I guess it’s more generally what you’re expecting for price trends over the long run.
Jimmy Lee
Yeah. We just came out two years ago from a very harsh winter condition as well as flooding conditions which of course had a huge impact in terms of wood pricing and availability.
Therefore, what we have done is essentially put a strategy together to minimize those potential type of impacts and the combination of that of course is to have better logistics operations having more volume of wood closer to the mill rather than having in an area that may not be as accessible increasing the amount of in-house storey rather than outside, so that again we’re not going to be impacted by winter conditions. We also have decided to essentially go into some marketing of palates because we believe that this of course will counter some of that sudden increase in demand coming from the heat market through a lack of availability of palates.
It’s not a big area but we do believe this helps in moderating pricing in various severe winter type of conditions. Also, we have imported a lot more wood from different areas that traditionally we have not really focused too much on and we intend to stay within these import areas so that we have precisely understand the market pricing and can readily access wood in the event that we see certain shortages in the other sourcing areas and therefore I think the plan moving forward will certainly mitigate a lot of that weather-related problems we had seen in the past hopefully.
We’re seeing certainly in Germany pricing which historically has been high. They have come down but still remain high and we don’t expect that to really change much and so we’re really relying on also to some degree cheap imports.
And therefore our pricing scenario moving forward is still moderately lower prices than we are today for German as well as European fiber but not a material change from where we are.
Sean Steuart – TD Securities
Okay. And then have you guys said your maintenance is scheduled for 2015 yet and if so, can you give us an idea of how that will unfold quarter to quarter?
Jimmy Lee
The schedule for next year, Sean, is Celgar is going to have their plant shut in Q1 and Stendal will be Q2 and Rosenthal will be Q3.
Sean Steuart – TD Securities
Okay. That’s all I had.
Thanks guys.
Jimmy Lee
Okay.
Operator
Your next question comes from the line of Andrew Kuske with Credit Suisse. Your line is now open.
Andrew Kuske - Credit Suisse
Thank you. Good morning.
I guess the question ties into a number of other questions that had been asked previously, but maybe a bit more specifically, just on cash development plans when we look at the future I mean obviously you have generated lot of cash this year and it’s been a huge swing versus past years. So when you think about just the steps ahead from using those case and redeploying it, is it really in the order of doing at the refinancing maybe collapsing the structure and effectively de-leveraging?
And then how do you think about incremental capital plans of new capital equipment? Whether they be just extensions or minor extensions of existing versus outright brand new things versus things with special dividends?
I guess it’s more of a macro capital allocation question.
Jimmy Lee
Yeah. I mean in terms of the whole refinancing and restructuring of our, I guess, a structure for unrestricted—of course that is the high priority item because I think that certainly simplifies our structure.
It also allows us to de-leverage at the same time and hopefully the combined impacts will also reduce our cost of the debt and after that in terms of the cash usage we really don’t have any major projects that we require in any of the mills. So we don’t envision that all of the sudden just because we have cash or have access available that we will all of a sudden go out and do a major expansion.
That’s not the plan. They will be continued ongoing of course reinvestment in all of the mills, but that would be probably at the levels that we presently have today.
In terms of generally our philosophy, once we have better balance sheet of course it is to look at distribution program because we think that of course that would allow our shareholders who now get also some of the benefits aside from the seer appreciation.
Andrew Kuske - Credit Suisse
Jimmy Lee
Yeah. I mean clearly we would look further in terms of the best structuring for text purposes, but at the end of the day I think it is the philosophy that we would be looking towards some form of regular dividend policy, of course keeping in mind the fact that we are a very psychical [ph] commodity.
So of course whatever distribution or use of cash would have of course reflect that, but I think that certainly is one of the topics for sure.
Andrew Kuske - Credit Suisse
Okay. That’s very helpful.
Thank you.
Operator
Your next question comes from the line of Andrew Shapiro with Lawndale Capital Management. Your line is now open.
Andrew Shapiro
Hi. On the last conference call you discussed the logistical issue that began in the middle of the quarter and was continuing to year and half regarding sufficient railcar supply which gave you at the point, I guess a backlog of inventory.
Your inventory seems to be moving out, but what’s occurred with respect to this logistical issue? Does it continue?
How are you dealing with it and how does it impact us?
- Lawndale Capital
Hi. On the last conference call you discussed the logistical issue that began in the middle of the quarter and was continuing to year and half regarding sufficient railcar supply which gave you at the point, I guess a backlog of inventory.
Your inventory seems to be moving out, but what’s occurred with respect to this logistical issue? Does it continue?
How are you dealing with it and how does it impact us?
Jimmy Lee
Hi, Andrew. I think what you’re referring to real congestion was CP [ph] primarily and that’s—
David Gandossi
Basically this is competition, I think with sale or everything else.
Jimmy Lee
Yeah and the [indiscernible]. So if that continues, we did manage to move of times in the quarter as you saw.
So we’ve worked around it and strategically we’re focused on cost-sufficient alternatives. So, we are putting a little bit of money we call it a high return project in a reload with another railcar that gets us to the cost for roughly the same cost and provides us with an option to move on CP or move on BN are our choice.
So who was making more optionality for sales? We’re not overly optimistic that the situation is going to improve with CP or CN.
Andrew Shapiro
And with respect—
- Lawndale Capital
And with respect—
Jimmy Lee
We have some offering [ph].
Andrew Shapiro
Sorry. Go ahead.
- Lawndale Capital
Sorry. Go ahead.
Jimmy Lee
We have good options going forward.
Andrew Shapiro
And with respect to the Rosenthal Mills tall oil capital project you have previously discussed, is the project done when it’s to to be done and generating revenues and what will be the total cost of that project?
- Lawndale Capital
And with respect to the Rosenthal Mills tall oil capital project you have previously discussed, is the project done when it’s to to be done and generating revenues and what will be the total cost of that project?
Jimmy Lee
Yeah. It’s nearing completion.
It’s coming in on budget which we have guided before somewhere around $4 million. It will be up and riding and delivering tall oil by the end of the year.
Andrew Shapiro
Okay. And we planned road shows and conferences now that the—we called that the financial restructuring process is somewhat beginning.
What’s the upcoming plans for the coming two quarters.
- Lawndale Capital
Okay. And we planned road shows and conferences now that the—we called that the financial restructuring process is somewhat beginning.
What’s the upcoming plans for the coming two quarters.
Jimmy Lee
Well. We’re hoping to be seeing quite a few of our investors as part of our refinancing at some point in time and the next couple of quarters and we’ll continue the bank conferences and so on in the meantime.
Operator
Your next question comes from the line of [indiscernible] & Company. Your line is now open.
Unidentified Analyst
Hello. Couple of questions.
Just on the application, I don’t know if you can answer this. I think the last quarter we pushed it out from our previous expectation that will be a late 2014 event and in our saying it’s mid 2015 event.
Is there any trial date we can be looking towards or any update you can give on that regard?
Jimmy Lee
Well. It’s a long process according to the company management schedule that testified in Washington D.C.and July of 2015.
We have filled our paperwork what we called [indiscernible] Canadian’s file there to reply are more real. We are in a process of answering a serious of questions from them and they will do the same dose [ph] and then there is a sort of hiatus on the spring over and then it will be individuals testifying during the summer.
We believe the panel will require two or three months to deliberate and we’re hopeful to have a decision by the end of 2015. So those are the general milestones if you like, but I guessed from the last call we’ve now seen candidates case convince there’s ever that we need to continue with this activity.
Unidentified Analyst
Okay. I had a number of questions on the call on the refinancing but looking at the governance that you have with the senior notes, you have call provision that you can use on December 1st at 104.75.
The cash flow numbers are then very good. The outlook is pretty good.
In terms of timing, is it possible to refinancing? Is it a 2014 event or are we looking at something more in 2015?
Jimmy Lee
It’s certainly a higher priority for us and we are working hard to be in the market when the markets are suitable. So I don’t want to lead too far on this, but we are moving to be ready as soon as possible.
Unidentified Analyst
Okay. Thank you.
Operator
(Operator Instruction) Your next question comes from the line of Amir Patel with RBC Capital Markets. Your line is now open.
Amir Patel - RBC Capital Markets
Hi. Good morning, guys.
Jimmy, I know who touched on spots [indiscernible] being pretty stable, but it’s just a clarify. So is it your view that contract discounts will be steady in 2015 compared to 2014.
Jimmy Lee
Yeah, certainly. I think in China the discounts projected this year versus next year is pretty much the same for the contract volume.
What we have done in China market is really don’t have long-term contracts because we felt that gave us a better pricing and so far it has. We felt that this gone for long-term commitments and justified.
I terms of North America, of course there is this continued push to widen the discount. This is of course due to more supply availability in North America versus the demand side.
In Europe, the discounts are pretty much the same. Of course there is a push to try to move that too, but we’re not expecting that [indiscernible] further.
Amir Patel - RBC Capital Markets
Interesting. And just more of a longer term question.
I guess in terms of speciality dissolving [indiscernible] is that something that you may have some capabilities to eventually produce and doing any R&D work on that front.
Jimmy Lee
Well. From my ability we undertook the study.
We felt that basically because of the size of our mills. We didn’t really make a lot of sense for us to be comfortable into dissolving at the time.
Shortly, there is technologies available for us to implement if needed, but we don’t think that market generally is attractive and of course there has been a lot of conversions in the last few years. So surely the landscape is way different than a few years ago.
And therefore we believe that we’re certainly are very efficient NBSK producers and we’ll continue to focus on that monthly.
Amir Patel - RBC Capital Markets
Right. I guess I was referring more to sort of the more speciality grades that people like [indiscernible].
Jimmy Lee
Yeah. I mean Renee are basically produces dissolving as well as very special dissolving grades and we don’t produce any dissolving at this point .
The speciality dissolving market is a very steep, even a smaller market than the commodity end and it requires a lot more effort than kind before you actually can enter into that. And from my perspective, we really don’t feel that our mills really are in a position to [indiscernible] benefit and therefore it is not in our plan.
Amir Patel - RBC Capital Markets
Final question for David. Even with all those MLP discussion, is that maybe changed how you look at potential acquisitions and maybe made U.S.
assets [indiscernible] more attractive?
Jimmy Lee
Yeah. Well, it’s certainly an interesting discussion.
It is fascinating to watch as it all develops and so we were very away of it, but there is nothing [indiscernible] at the moment. It is everywhere talking about from Mercer’s perspective.
Amir Patel - RBC Capital Markets
Okay. That’s great.
Thanks. That’s all I had.
Operator
Your next question comes from the line of George Berman with J.P. Turner & Company.
Your line is now open.
George Berman - J.P. Turner & Company
Good morning, gentlemen. Thanks for taking my call.
Jimmy Lee
You’re welcome.
David Gandossi
Hello, George.
George Berman - J.P. Turner & Company
First of all, let me say congratulations, a very nice quarter, a very good timing on the buying of the minority interest in Germany. The tax benefits that we received this quarter, I think that’s a one time item?
Jimmy Lee
Yes it is, George.
George Berman - J.P. Turner & Company
Could you comment on how the strong U.S. dollar versus Canadian dollar affects your results going forward?
Jimmy Lee
Well, of course the strong US dollar generally is a very – has a very positive impact in terms of our earnings and overall performance. So far what we have seen of course is the euro has been weakening, the full impact of that weakening, well, it was not shown in the prior quarter because we have this exchange rate averaging.
So the prior month average essentially determines the pricing for the following month and therefore there is a lag. We will see through the Q4 some of those benefits which already have occurred now actually go through and with the further weakening of the euro this will continue through the subsequent quarters.
So you don't take the recent weakness in terms of the euro already being reflected in our earnings. In fact, most of that has not been reflected in terms of our earnings.
So moving forward clearly we feel very positive about the currency developments because it makes it much easier for us to compete globally with a very strong euro over the last few years, it has been of course very difficult. But now with euro at 1.256 levels then you're really looking at a very competitive situation for our German mills, and of course it helps Celgar as well, the weak Canadian dollar, but the impact really isn't as big as the impact in our German mills.
George Berman - J.P. Turner & Company
And it's good to owe a bunch of Euros when the Euro goes to parity with the dollar, huh?
Jimmy Lee
We basically generate our income based on US dollar list prices and therefore if the euro is at parity then of course their pricing regime with all things remaining the same means that in euro terms the price is very very attractive.
Operator
Your next question comes from the line of Sean Sauler with Redwood.
Sean Sauler - Redwood Capital Management
Hey guys, just one quick question, or actually two questions, I guess. The first one is, have you quantified -- I think you have in the past -- the effect of every move in the euro, by a penny on your net income or EBITDA, and then secondly related to that, what percentage of mills in the world are in euro-denominated countries?
And then the next, and with that, what percentage of mills, NBSK mills in the world, are in dollar denominated areas?
Jimmy Lee
I will certainly take a shot at the first one. So in our 8-K last year, we had some sensitivity [indiscernible] and we referred to costs in that circumstance.
There was one cent moves caused by about $5 million on the European side, and a $0.01 move relative to Canada was 3 million, so a total sensitivity of 8.
David Gandossi
So in terms of the percentage of the mills, I mean historically there has been like the 40 to 45% within the euro or Scandinavian zone, of course, the Swedish kronor is not part of the yield. In fact, of course there is – we’re even further then the euro but if you look at the kronor and the euro zone it may represent between 40% to 45%.
The Canadian dollar zone somewhere around 40%, 45% and then the balance within the US kind of currency zone for NBSK.
Sean Sauler - Redwood Capital Management
Great, and David, is that -- the $5 million, is that an annual number or a quarterly?
David Gandossi
That’s annual, yes.
Operator
There are no further questions at this time. I would now like to turn the call back over to David Gandossi and Jimmy Lee.
Jimmy Lee
David and I thank everyone for again coming to today’s conference call. And as I indicated that clearly we are having a very strong tailwinds of the weakening currency, especially the euro against the dollar.
And as I earlier indicated the third quarter doesn’t really capture all of that movement and of course with the euro we believe that the pricing regime considering the weakness of the euro has remained reasonable firm and therefore we are very optimistic about this year and we will continue to be very optimistic of next year as well based on the supply and demand. So on that note, I thank everyone again.
Operator
This concludes today’s conference call. You may now disconnect.