Edward Brucker

Edward Brucker questioned the potential closure of the Peace River mill, including timing and regulatory hurdles, and inquired about Mercer International's strategy for addressing upcoming debt maturities in 2027, 2028, and 2029 amidst challenging market conditions.

Answer

Juan Carlos Bueno, President and CEO, stated that Mercer is focused on transitioning Peace River to more softwood production and pursuing energy and carbon capture projects with government support to improve profitability. Richard Short, CFO and Secretary, confirmed ongoing discussions with banks for revolver extensions and expressed comfort with the runway for 2028 and 2029 maturities.

Edward Brucker inquired about the potential closure of the Peace River mill, including timing and any government approvals or hurdles. He also asked for new thoughts on liquidity and debt productivity given the difficult market, potential cash burn, and upcoming debt maturities in 2027 and 2028.

Answer

Juan Carlos Bueno (President and Chief Executive Officer) explained that Mercer is focused on transitioning the Peace River mill from hardwood to softwood production, aiming for a 50/50 split by year-end, which is more profitable. He highlighted ongoing energy projects and carbon capture as future profitability contributors, with government support. Richard Short (CFO and Secretary) addressed debt, stating that discussions for revolver extensions are underway, expected to be more expensive, and aiming for conclusion before the end of Q2. He expressed comfort with the 2028 and 2029 maturities.

Edward Brucker asked about the directional margin profile for Magnera's innovative products, distinguishing between proprietary and commoditized offerings, and whether these new products are expected to cannibalize any existing portfolio items. He also sought clarification on the $100 million debt reduction goal for the year, specifically if it represents gross debt reduction and the targeted instruments (term loan or bonds).

Answer

Curt Begle (CEO, Magnera) explained that innovative products aim to protect existing business and offer margin improvement, typically ranging from mid-teens to 20%+ above the average 11% margin, depending on uniqueness and collaboration. These products focus on new features/benefits and are not expected to significantly cannibalize the existing portfolio. Jim Till (CFO, Magnera) confirmed that Magnera will pursue debt reduction by buying back both bonds and term loans in the open market, prioritizing the best yield and return at any given time.

Edward Brucker inquired about the rationale behind Magnera's decision to pay down its term loan and whether the company expects to continue using excess cash flow for debt reduction in the upcoming fiscal year.

Answer

CEO Curt Begley explained that the debt paydown was part of Magnera's stated capital allocation priorities and reflected the company's commitment to doing what it said it would do. He affirmed that the focus remains on deleveraging and prudently managing cash and liquidity. He stated that while the board reviews these matters quarterly, the current plan is to continue on the path of debt reduction.

Edward Brucker asked for insights into the current demand environment, specifically whether the observed caution reflects a weaker consumer or more structural issues. He also questioned the rationale behind paying down the term loan and if excess cash flow in the next year would be used for similar debt reduction.

Answer

Curt Begle, CEO, explained that Magnera's products are essential goods, and while consumption rates may be softer in some geographies and positive in others, the company helps customers optimize costs through new materials, platforms, and down-gauging. He noted more caution in the European market, stable demand in Asia, and a mixed outlook for the Americas. He highlighted the expansion of adult incontinence products due to aging populations and the focus on form, fit, and function. Regarding debt, Curt Begle stated that paying down the term loan was part of the company's stated capital allocation priorities and a commitment to deleveraging. He confirmed that the focus remains on debt reduction and managing liquidity, with ongoing evaluations by the board.

Edward Brucker of Barclays Capital inquired if the TiO2 market's supply is now closer to underlying demand after recent capacity cuts and asked about the company's secured debt capacity.

Answer

CEO John Romano responded that while significant capacity has been removed, the weak market in China remains the largest variable, though he believes the market is positioned for a tighter balance upon recovery. CFO John Srivisal offered to follow up offline regarding the specific secured debt capacity.