Q4 2022 Mercer International Inc Earnings Call
Okay.
[music].
Good morning, and welcome to Mercer International's fourth quarter 2022 earnings conference call on the call today is Juan Carlos <unk>, President and Chief Executive Officer of Mercer International with debit your senior Vice President Finance, Chief Financial Officer, and Secretary I will now hand, the call over to.
Debit your.
Good morning, everyone. Thanks for joining us today I will begin by touching on the financial and operating highlights for the fourth quarter before turning the call to Juan Carlos to provide 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 was 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 mornings 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 return the mill to near full production. After the Q3, what we are.
Here, along with higher pulp and energy sales volumes. This was more than offset by lower energy sales realization 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 2020 to a relatively strong U S dollar compared to the Euro and Canadian dollar along with improved pulp sales volumes.
Currently stendhal is approaching 100% of capacity and we expect the final repairs to the fire damaged wood yard infrastructures will be completed 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 scheduled maintenance at our Rosenthal mill.
Our pulp segment contributed quarterly EBITDA of roughly $98 million and our solid wood segment, which includes our freeze our lumber operation along with the newly acquired tour Gal mill at our Spokane mass timber startup contributed quarterly EBITDA of about $5 million you can find additional.
The 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 modest pricing declines European N V. S. K list prices averaged <unk> hundred $42 per ton in the current quarter compared to 5800.
Dollars per ton in Q3.
In China, the Q4 average N B S. K net price was $920 per ton down $49 from Q3.
The price gap between N B S. K at hardwood narrowed slightly in the quarter due to hardwood prices decreasing less than N. B S. K prices with the average Q4 net eucalyptus hardwood price in China at $837 per ton 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 realization fell sharply in Q4 due to relative weakness in both the U S and European markets. The random lengths U S benchmark for Western SPF, <unk> and better averaged $410 per thousand board feet in Q4, which was down $170 from.
Last quarter.
Our average European sales realization were down approximately $118 per thousand compared to Q3.
Today, the benchmark lumber price in the U S is currently 450 $455 per thousand 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.
<unk> returned to near full production and the addition of tour Gal.
The energy situation in Europe changed significantly in the quarter. The December implementation of an energy price cap effectively reduce that net realized price to about $120 per megawatt hour, which while lower than Q3 remains much higher than our historical realization prior to <unk>.
<unk> thousand 22.
Q4 reflects a full quarter of results from the Q3 acquisition of the tour gout mill. However, the net earnings impact was nascent this quarter due to a U S. GAAP requirement to mark to market acquired inventories and order books in this case for pellets and pellets to the current market price of <unk>.
<unk> 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 tour Gal in Q1.
We reported consolidated net income of almost $20 million for the quarter or <unk> 30 per basic share compared to net income of $67 million or $1 <unk> 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 tour golf 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 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 $175 million to $200 million in our operations. This year, while Carlos will provide 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 300 million Euro 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 as you would have noticed from our press release, our board has approved a quarterly dividend of seven five per share for shareholders of record on March 29, 2023 for which payment will be made on April five 2023.
That ends my overview of the financial results and I'll now turn the call to Juan Carlos.
Thanks, Dave.
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 on our production and sales volume were up for all our products compared to Q3, and we returned our stendal mill to almost full capacity of midway through the quarter.
As we expected the pulp markets weakened but only slightly.
Lumber markets weaken more significantly in the quarter, but we are beginning to see signs that this market will improve.
As Dave highlighted there were there were significant changes in energy policy in Germany during the quarter, which reduced our electricity revenue compared to Q3.
But while this topline 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 <unk> sawmill.
Coordinating the logistics for the various fiber and wood transfers, we envisioned takes time and I am satisfied 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.
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 projects and we have currently over 50 projects in various stages of evaluation of our bid and many are complex projects will will take time to negotiate and finalize that we expect.
A few of these already to be contract that in the coming.
Days and weeks.
As I mentioned global pulp markets remain resilient through the fourth quarter with prices down only slightly there are a number of factors currently at play in the <unk> 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 are seeing considerable demand improvement from China, as Covid restrictions Wayne and shipping channels reopen none of course in recent months. We do supply is now beginning to have a material impact as producers look to increase their pulp inventories.
So the <unk> market has seen the equivalent of two pulp mills permanently remove between 2022 in early 'twenty three and in addition, temporary curtailments driven by fiber supply constraints in Western Canada are also impacting the market. This.
This includes our Cariboo joint venture, where we're taking two months of downtime this spring and summer due to the lack of fiber.
Hardwood prices also have their own in the quarter. Although we are expecting some softness in the next few quarters as significant new capacity comes online in 2023.
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 number market pricing reflected weakening of both the U S and European markets on average our lumber realizations were down in Q4, roughly 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 mid term backdrop for U S lumber pricing 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 Unconstructed 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 in Q4, we saw our logistic channels continuing to improve which resulted in a modest decrease in our freight costs high fuel costs are keeping freight freight cost higher than what we hope for but the improvements 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.
Hi, pulpwood costs were mainly driven by demand from the energy sector as users were looking for cheaper forms of energy.
Looking ahead to Q1 this year, we are anticipating downward pulpwood pricing pressure in Europe .
While European saw log demand and supply are in balance and as a result, we expect solid 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.
Surprisingly these factors are also negatively impacting fiber supply.
And as mentioned our Cariboo joint venture Ball Mill has announced that 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 <unk> and peace River would rooms.
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 $175 million to $100 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 of pilot plant and the $27 million expansion project, our Spokane mass timber plant.
This booking plant investments will allow the state of the art facility to fully utilize our more varied raw material mix at <unk> to our product portfolio and increased fingers joined production. This is a first step in what will ultimately be an expansion of CFC capacity in anticipation of our efforts to steadily increase our order book for mass timber <unk>.
<unk>.
As we think about climate change and the rapid shift occurring regarding reducing carbon emissions.
Harvest like lignin mass timber green energy extracted 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 of 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 solutions. 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 fault, but to bring more balance to our business solid wood and extracted will go more quickly.
Also.
To remind listeners we remained committed to our carbon emission reduction targets I encourage you to look at our website for more details. We are so confident 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 up modest reductions in our cost of borrowing.
So that said thanks for listening and I will now turn the call back to Sara for questions. Thank you.
As a reminder, if you would like to ask a question or make a contribution on todays call. Please press star one on your telephone keypad to withdraw your question. Please press star two please ensure your line's on mute locally as you will be advised went to ask your question.
The first question comes from the line of <unk> from TD Securities. Please go ahead.
Hi, Good morning, apologies in advance I think I have a bad connection.
You mentioned $18 million in insurance proceeds to date, how much was in Q4.
Okay.
Yeah. It was about <unk> six cassia.
Okay. So most of it had been received in Q3, then I take it.
Yes, that's right.
So there'll be a little bit little bit more coming but the insurance here has actually been quite quite efficient. So the insurer has been providing us advances that sort of match our expenditures. So it's generally being coming in as the work has been done.
Got it so maybe just a single digit few million dollars coming in in Q1 is that fair I think that's fair yes.
Great and Dave can you quantify the mark to market on the inventory how much that impacted EBITDA in the quarter.
Yeah.
Roughly roughly $10 million.
And the Q4 depreciation rate is that a good rate to use going forward as a run rate for modeling purposes.
Yes that should be that should be all right.
And then David if you could just give a.
Maintenance outlook for 2023, I noticed in your 10-K, but if you could specify between the mills that'd be great.
Yeah.
Moment here.
Alright.
Okay. So in.
Q1, we will have a.
The shut at <unk>.
Small shut at <unk> in Q2, we will have a.
Larger larger shops.
Fairly substantial typical shut at peace River for a couple of weeks. We also have a shot at caribou in Q2.
Q3, we will have our typical two week shut at Rosenthal.
And <unk> will have their major shut in Q4 sort of a two two to three week shut in Q4.
Thanks, Dave what do you think for paper maker demand right now and what are our border books looking like.
It's one cassia. Thanks for the question in paper demand, what we're seeing is obviously a slowdown in Europe and the European markets.
Those have been the ones that have.
Suffered a bit the most and so I would say almost end of Q3 and beginning of Q4.
But now what do we see compensating that is obviously the.
China coming back.
So there's a there's a little bit of a balance there in terms of how the paper market is moving.
Thanks for that context. The last one for me you had charge offs were a little over a quarter, how is that going relative to your expectations and any context, you could provide there any key takeaways on progress to date.
Very good and very happy about the progress in <unk>, particularly with the synergies that were already able to extract and.
And very little time.
We think about this we just took over.
First 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 positive.
And as we unlock further capacity of tour Gal, we expect those synergies just to increase.
Quite why are we 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 for the moment.
Signs solid dose and whatnot. So so it's a very positive.
Addition to our overall portfolio.
Thanks, very much everyone I appreciate the context I will get back in the queue.
Thank you.
The next question comes from the line of Paul Quinn from RBC Capital markets. Please go ahead.
Yes, thanks, very much and good morning, guys.
I guess, maybe this is for Dave, but if you could just give me a rough cost of the <unk>.
At both caribou and Sagar, how should we model that in.
For 2023, Paul.
Yes, I'd just add that.
Fiber related shuts that youre, taking at both mills.
Okay, so not the maintenance shuts.
Youre talking right curtailments.
Yes.
Yes, I don't think we have.
I don't think we have I don't think we we can disclose that but I can tell you that.
The reason you do it is because that that incremental fiber that is available to.
To operate the mill is higher than.
What it would what it would take to just to cover your fixed costs.
So generally that's the call we make.
Okay.
Yeah.
Yes, you don't have the specifics, but what about overall fiber costs in general I mean, youre, obviously, you've seen a big price increase.
In Europe I suspect that's also affecting unit.
Alberta pretty flat.
Yes, Alberta, Paul This is one of our Alberta, as we have seen a bit of increase but nothing too dramatic remember in Alberta.
The estimates that we work with we have quite a significant amount of of wood at our 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.
Had over the quarter very high increase in wood costs associated with all the energy crisis and all the scared that was going on doing.
During that period of time, but obviously that has now is down significantly and actually what we're seeing today.
As an important reduction.
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 so I think that's very positive overall and in the case of BC, obviously with their curtailments of continuous curtailments of Salt Mills.
That is putting a significant strain and the whole system.
We will see now that.
This other pulp mill had has been shut down.
It 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 on fiber availability, especially in D. C. Because it seems most constrained there.
What do you think of that position.
Note that you've got in that jurisdiction or are they going to be able to be able to be fiber it up.
But for forward or is it is it could be rolling downtime because of lack of residuals.
There's there's if I talk about <unk> specifically.
Theres a couple of things that make cellular probably.
Stronger positioned and then probably the 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.
Four 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 to 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 that's something very positive for saga number one and number two we have the the wood room that is that we've announced and we'll be ready not only in peace River, but also in <unk> later in the year, we expect that wood room to be up in <unk>.
Running by the end of the year.
And that the fact that we that we are able to bring that wood room in play that that basically reduces the dependence that we have on the sawmill residuals.
So that's another very important step to make sure that <unk> got runs.
Without interruptions.
Once those things are in place.
In caribou is.
So a little bit different situation.
Don't have those those options of the wood room or the proximity to the U S.
But together with our partners, we are working very diligently and making sure that we secure the necessary.
Would 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.
Curtailments that we've announced.
Before so.
We are in the works on that.
Sure.
Alright, David.
Over to you just.
175% to $200 million of Capex that is split that between maintenance and then the amount that youre sitting on high return projects.
Yes, that's always a tricky one because.
One person's definition of MLB is might be different than.
Then on the others, but that I would say, it's probably a pretty good mix of it's probably close to 50 50.
So it's got some some terrific projects like Juan Carlos had mentioned this will be the year that we do the bulk of the work on the Spokane C. L. T plan. So looking for some some expansion. There. We're also doing some work at tour Gal. Some early optimization work to increase the lumber production at <unk>.
And of course these are the wood room that Juan Carlos talked about it Sagar. We're also doing the same thing at Peace River, which is nearing nearing completion and both of these these projects are extremely high high return.
But I would say.
Probably roughly 50 50.
Okay, and just lastly, and I'm, sorry, I haven't been on this.
Calls for a while just to get conflicts.
Paper excellence is close to finalizing there through acquisition of resolute.
The diverse both driving and TBA or any interest in those wells.
Not really to be honest, Paul I think we have we're happy with what we have and will continue to focus on those.
Yes.
Alright, Thats all I had thanks very much guys best of luck.
Thanks.
The next question comes from the line of Richard Steven from Ed Mundy. Please go ahead.
Hi, and thank you for taking my question 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 talked about 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 the China is China opens up.
They will be a net exporter of product and all the likely that product will end up into Europe is that fair to say.
When we were.
I believe Richard what we were referring to and additional capacity was more on the NBA <unk>.
Market, so a hardwood market that will see a very significant capacity coming through during the year.
That capacity is coming basically from from South America, with Brazil, and Uruguay coming in Chile coming to play.
And that's something that will that during the course of this year and next year.
Quite a significant amount of pulp of hardwood pulp into the market.
So the destination of that obviously is you will say China is going to be a significant market for it I would say the if not the most predominant one.
The off taker of a large part of that.
And that's why we made the statement that we.
We believe that NBA <unk>.
Is it going to be going through prayer, a bit tougher cycle.
Is that.
Amount of capacity is being absorbed by the market and that one thing that I would comment though is usually when those things happen it.
It's kind of a phased in and it's not that you have 2 million tons.
Tons of pulp dumped in the market from one day to another.
So those things are usually phased in a way that.
That it thinks a little bit easy.
As they go through it.
And as they ramp up their production, but obviously, it's an important factor for I think for the for the end of this year when some of those things are fully up and running and even more in 2024.
Got it okay, that's very helpful.
Alright I appreciate it thank you.
The next question comes from the line of Andrew <unk> from Credit Suisse. Please go ahead.
Thanks, Good morning, I guess, the first question is for Juan Carlos.
Really along the lines of the balance of the business and you mentioned this earlier on about the.
<unk> ambition is to balance the business how do you think about the business next for Mercer on a longer term basis.
We're talking five years out 10 years out how do you think about that.
Thank you Andrew Yes, we're very very focused on on that specific item that you just mentioned on balancing better our company and diversifying it.
So that it's not so heavily dependent on pulp overall.
We believe that there is still very good opportunities for us to grow in pulp, but we will pursue.
Higher opportunities for growth in lumber and CMT.
And not only that but also in our biomaterials space with Linkedin and as Dave mentioned, and I think I'm answering that as well we have this.
Already the lignin investment going through in 2023.
If you asked me.
Looking 10 years ahead.
Hope to see a company that is much more balanced and by that I wouldn't be surprised if if pulp is anywhere below 40% in lumber is anywhere above a third of our company and some of these biomaterials take.
We started taking some some two digit space into this into this mix so that would be how I would.
With painted for the future with lumber and pulp that almost almost a balance.
Okay. That's very helpful. And then I guess the second question.
At the same kind of timeframe.
It goes to Dave.
Don't really have any near term maturities at all.
<unk> been very adept and this isn't to be patronizing, but <unk> been very adept over the years of sort of flexing things, we bring up when appropriate and then paying down debt.
And being well positioned to generate 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.
Yeah no we.
We do think about that a lot even though we don't have.
We don't have any near near term maturities.
We've been pretty pretty fortunate to have the.
It 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 other sources of financing and.
Yeah, and a lot can change in the next year as well as you know we've been we've been generating we've got a pretty pretty good cash flow pretty good operating cash flow and so.
So I think we're going to have the opportunities if the if the markets arent arent there to roll those those facilities over we will have the opportunity to do something else and that may include may.
They include shrinking the debt up.
It better be 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 in the pipeline for Capex or M&A.
M&A opportunities as you know we've been we've had a little bit 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 the Spokane facility and recently the tour Gal facility I think we've been.
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 you'll see us at times.
A little bit a little bit conservative or might 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.
To jump on those opportunities quickly.
So Andrew that's a bit of a ramble, but yes, theres a lot of moving a lot of moving parts, but we're paying a lot of attention to that particularly over the next.
Next year or two.
Okay I appreciate the color. Thank you.
Again, if you would like to ask a question or make a contribution on todays call. Please press star one on your telephone keypad to withdraw your question. Please press star two.
The next question comes from before.
Private Investor. Please go ahead.
Hey, Thanks for taking my questions.
Can you just give us an update on the.
The what rooms.
I think you had spoken about these at length in the past <unk> talked about the opportunity for.
Grant proceeds tied to the completion of all is that still possible.
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 to be concluded.
And starting up already in the second quarter early in the second quarter.
So we're already halfway through the commissioning phase.
So that is that is obviously of high expectations and we've gotten good support from.
From the government to two into that project.
So that to US is very very important as we mentioned before the one in.
<unk>.
And that one we need to associated with there's some work that needs to be done and we want to do it at the time of the.
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 into that commissioning phase.
<unk>.
As far as the values.
Do you remember how much is each one round round numbers the peace River the Peace River Woodroof as in the in the range of $50 million to $60 million and we will start up in the next the next.
A few months here and the Sagar one is about in the range of $30 million to $40 million.
And I think there was talk in the passenger with some be some grants associated with that or 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. Thank you 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 at a bankruptcy. There were some commentary it was really nice facility brand new lots of equipment.
Lots of capacity, we started doing some finger joint work.
We've added.
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.
<unk> taken a big step back.
What is the.
Profit outlook for that business going forward either when the next one to two years and what's the targeted return on investment for that.
Spokane facility just to help everyone understand.
What does that build.
Building.
What's the what's been able to do in our minds.
Absolutely.
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 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 of this business we.
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 will make a mark for let's say the.
The full load of our CMT facility and that is very important thats 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 startup.
And that's why we decided to make the investments ahead of time.
Because we see the need for that facility to.
To develop itself further even though he 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 <unk> in their lululemon CRP as we phase many of these projects that we're bidding on.
We see more and more that need of those two going together and many of the construction projects that we're working on.
So having the facility being capable to provide offerings is obviously something that would be very attractive to our customers and hence.
Our desire to go through with that investment in terms of your question of how material it can be.
Going forward.
Without getting into it.
Committing to numbers I would say that that would be.
By the end of <unk>.
24.
Should be much closer to rounding.
Values.
Closer to that to the 100 million profit.
Overall in this facility.
So that is that is our aim.
And we see.
Very strong likelihood that we that we will be able to achieve that growth. So so it is important that we talked 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.
In the past we've had some credit facilities tied to individual locations, if we're going to be doing.
That type of profit number that you put out there for 2024 and 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 divorce, yes, we'll have to wait and see at the moment.
We will take that as it comes but it possibly could it possibly could.
We'll see how it develops and Oh.
As Juan Carlos mentioned, we're pretty we're pretty bullish about it and we'll we'll probably if it goes away. We think it's going to go we're going to invest more in that business and it may need some may need some financing and that might be appropriate to do but at.
At the moment.
We're we're covering that with our existing <unk>.
Existing finance structure and cash.
And just one thing to make sure that because I don't know if I misspoke.
When we look at the value of this.
Expectations for it for next year two.
<unk> 2024 that I mentioned and closer to 100 I refer revenue more.
Profitability.
Okay. Thank you for clarifying that and then last question on.
Free cell can you give us an update in terms of where we stand on capital expenditures. There I believe at one point there was a.
A fair amount of cleaner capacity sort of capacity going in and I think there was some thought of additional.
Peter sorting, our planning 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 there was intended for free so after acquisition a few years back has now been concluded.
So so that is that as well.
Made very good progress on it.
So there is there is very little that is left yet to be to be executed there.
Now the focus is now turning on the Capex that we want to put into <unk>.
As we see a tremendous amount of potential in that facility.
As back to your original question about CMT.
You mentioned that that will.
<unk> made some comment associated with pellets.
And just to be clear, our Spokane facility in Washington is not doing any of that.
Just focus on CMT Lululemon finger joined and now the acquisition of <unk>.
That's where the pilots and the pellet business comes in.
And that's obviously something that we intend to maintain but what we want to grow into that facility as the lumber output.
And that's a facility that has four saw.
For sawmills.
<unk> for <unk> lines and in only two of them are being used.
Used prop.
Proper way. So we know that there is a tremendous amount of potential to be extracted.
That's why we want to divest.
Excuse me direct our investment.
More towards store goal.
We unlocked the potential that that facility really has.
Okay. Thank you.
And there are no further questions I will now hand, the call back to Carlos for closing remarks.
Okay. Thank you Sarah and thank you all for joining 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.