Mercer (MERC) Q4 2025 Earnings Call Transcript

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Date

Friday, February 13, 2026 at 10 a.m. ET

Call participants

• Chief Financial Officer — Richard Short
• Chief Executive Officer — Juan Carlos Bueno

Takeaways

• Operating EBITDA -- Negative $20,000,000, representing an $8,000,000 sequential improvement, primarily due to cost reductions and stable production.
• Non-cash impairment charges -- $216,000,000 total, including $204,000,000 related to the Peace River mill’s long-lived assets and $12,000,000 for obsolete equipment in the solid wood segment.
• Quarterly net loss -- $309,000,000, or $4.61 per share; included $239,000,000, or $3.57 per share, in total impairments.
• Liquidity -- Improved by over $54,000,000 during the quarter, reaching $430,000,000, comprised of $187,000,000 in cash and $243,000,000 in undrawn revolvers.
• Pulp segment EBITDA -- Negative $11,000,000 in the period; same loss amount for solid wood segment, reflecting challenging markets.
• Non-cash inventory impairment -- $23,000,000, with approximately $15,000,000 allocated to softwood inventories.
• Pulp sales volume -- 472,000 tons, up by 20,000 tons sequentially; pulp production was 460,000 tons, flat after adjusting for downtime.
• Softwood sales realization -- $707 per ton, down from $728 per ton in the preceding quarter.
• Average NBSK net price in China -- $601 per ton, a $19 sequential decline; North American NBSK list price averaged $1,568 per ton, down $132 quarter over quarter; European NBSK held steady at $1,498 per ton.
• Hardwood sales realization -- Flat at $528 per ton compared to Q3; average net price for eucalyptus hardwood rose by $37 to $540 per ton.
• China pulp price gap -- Average softwood versus hardwood price gap narrowed by $56 to about $130 per ton.
• Lumber production -- Decreased 6% to 109,000,000 board feet, citing reduced sawlog availability and holiday slowdowns.
• Lumber sales volume -- 103,000,000 board feet, declining by 7% from the prior quarter, consistent with lower output.
• Western SPF benchmark price -- Averaged $422 per thousand board feet, down from $477 per thousand board feet; early Q1 price at $448 per thousand board feet.
• Electricity sales -- 202 gigawatt hours, with pricing stable at about $105 per megawatt hour.
• Fiber costs -- Remained steady sequentially but are expected to rise in Q1 2026 in both Canada and Germany due to supply constraints and seasonal biofuel demand.
• One Goal 100 program -- Achieved approximately $30,000,000 in cost savings and operational improvements in 2025; target is $100,000,000 by 2026 (using 2024 as baseline).
• Planned maintenance downtime -- Fourth quarter had 21 days at Stendal, reducing output by 42,000 tons; lower planned downtime expected in 2026 with almost 50 fewer days than in 2025.
• Mass timber backlog -- $163,000,000 as of the call, up from $80,000,000 at end of Q3; 2026 expected revenues above $120,000,000, with revenue more than double 2025 levels.
• Mass timber profitability -- CFO Short said, "That year, even though it was a low sales result, it was a neutral cash flow. Now for this year…positive profitability and, obviously, with the contribution to cash…So, again, still single digits under that. But once we are running in two shifts…obviously, we would be looking at a double-digit profitability for that business."
• Carbon capture pilot -- CEO Bueno stated, "the pilot plant is operating, and the results so far are very encouraging, both in terms of the efficiency as well as purity of the CO2 being captured." Results from a six-month testing period will inform future investment.
• Maintenance CapEx guidance -- Management plans to spend $60,000,000 to $80,000,000 in 2026, focused on maintenance, environmental, and safety initiatives.
• Expected working capital outflow -- Around $100,000,000 to $150,000,000 in 2026, including interest, capex, and a small net outflow on working capital.
• Revolving credit facility extension -- Discussions are in progress, with CFO Short noting, "the conversations are going well," and expecting extension "before the end of Q2, for sure."

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Risks

• Management recognized, "Our operating results continue to be undermined by significant market headwinds," citing weak pulp prices, high fiber costs, and demand softness.
• CFO Short disclosed, "we are comfortable that we are well under the covenants at the end of the quarter, but we will expect them to tighten as the year progresses given the weak outlook."
• CEO Bueno said, "market weakness is expected to persist in 2026," emphasizing a strategic focus on liquidity and portfolio rebalancing to manage ongoing uncertainty.
• Future fiber cost increases expected in Q1 2026 for both Canada and Germany, due to supply constraints and intensified seasonal competition in Germany from the biofuel industry.

Summary

Mercer International (NASDAQ:MERC) reported substantial non-cash impairments and a sizable net loss, though underlying liquidity improved through cost actions and working capital initiatives. Segment results remained negative, with both pulp and solid wood divisions posting operating EBITDA losses amid historic market headwinds, while cost inflation and lower price realizations compressed profitability. The company prioritized strategic asset allocation and product mix improvements, continued development of carbon capture and biorefinery projects, and highlighted a rapidly growing mass timber backlog, which is expected to drive higher sales and margin contributions as production ramps up. Management reaffirmed a cautious 2026 outlook, flagged rising cost pressures, and indicated active engagement with lenders concerning covenant headroom and revolver extension.

• The Peace River mill impairment did not factor in potential upside from planned operational shifts and government-supported projects, due to U.S. GAAP restrictions for impairment testing.
• Mercer’s Celgar mill is insulated from Canadian tariff headwinds through U.S. fiber imports that compose 45% of its input mix, with no retaliatory tariffs, cited as a competitive advantage.
• Revenue from mass timber is guided to grow “above $120,000,000” for 2026, with backlog already stretching into 2027, supported by rising demand from data center development.
• Management described the current market for biofuels as "up almost 10% relative to Q3 due to seasonal demand," contributing to competitive wood fiber pricing in Germany.
• CEO Bueno noted German wood chip costs are elevated by state incentives for wood-based energy, reducing the availability of raw materials for pulp and lumber operations.
• Relevant trade barriers include a 10% U.S. tariff on European lumber, contrasted with an average 50% duty on Canadian lumber, which management views as a relative competitive position.
• Company plans for asset sales or restructuring are ongoing, with management emphasizing that such actions would be tied to efforts to deleverage, but asset sales in a trough environment are deemed suboptimal for valuation.

Industry glossary

• NBSK: Northern Bleached Softwood Kraft pulp, a commodity-grade pulp produced from softwood used in high-quality paper and tissue applications.
• NBHK: Northern Bleached Hardwood Kraft pulp, made from hardwood species, typically used in printing, writing, and specialty papers.
• Random Lengths Western SPF: A widely referenced U.S. benchmark for pricing Western Spruce-Pine-Fir lumber, typically quoted per thousand board feet.
• Mass timber: Engineered wood products—such as cross-laminated timber—used for structural applications in construction, often considered a sustainable steel and concrete alternative.
• One Goal 100 program: Mercer’s ongoing cost reduction and operational efficiency initiative targeting $100,000,000 of cumulative EBITDA improvements by 2026 based on a 2024 baseline.

Full Conference Call Transcript

Richard Short: I will begin by touching on the financial and operating highlights of the fourth quarter before turning the call to Juan Carlos to provide further color into the markets, our operations, and our strategic initiatives. Also, for those of you that have joined today’s call by telephone, there is presentation material that we have attached to the investors section of our website. But before turning to our results, I would like to remind you that we will make forward-looking statements in this morning’s conference call.

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 our press release and in the company’s filings with the Securities and Exchange Commission. Our operating EBITDA for the fourth quarter was negative $20,000,000, up $8,000,000 when compared to the third quarter’s results. This change in performance was largely due to stable production across all our mills and the benefits of our One Goal 100 program. However, market headwinds, including pricing, weak demand, and elevated fiber costs in both Germany and Canada, continue to weigh on our overall results.

The current quarter’s EBITDA also includes a non-cash inventory impairment of $23,000,000. In the fourth quarter, we recognized total non-cash impairment charges against our long-lived assets of $216,000,000, or $3.22 per share. $204,000,000 of this was against the assets of the Peace River mill, a requirement under U.S. GAAP that reflects the ongoing weakness in the hardwood pulp market. We also recorded a $12,000,000 impairment in our solid wood segment related to the sale of obsolete equipment. Given the challenging hardwood pulp market conditions, there are a number of strategic initiatives underway with the goal of returning the Peace River mill to profitability.

These include expanding softwood pulp production, exploring government support for incremental energy generation, and a carbon capture project. Unfortunately, U.S. GAAP does not allow for the inclusion of these initiatives in the impairment assessment. Juan Carlos will provide more detail on these initiatives shortly. Our pulp and solid wood segments both reported negative quarterly EBITDA of $11,000,000 in the fourth quarter. Additional segment disclosures are available in our Form 10-Ks, which can be found on our website and that of the SEC. In the fourth quarter, NBSK markets weakened due to the sustained uncertainty of the global economy. As a result, our softwood sales realizations decreased to $707 per ton, down from $728 per ton in the third quarter.

The NBSK net price in China saw a small decline to $601 per tonne, a $19 decrease from the third quarter. We observed a more significant drop in the North American NBSK list price, which averaged $1,568 per ton in the fourth quarter, a reduction of about $132 from the third quarter. The European NBSK list price remained stable at an average of $1,498 per ton. Hardwood markets in China showed improvement in the fourth quarter, largely due to stronger demand and increased domestic fiber costs. Meanwhile, demand and pricing in North America remained steady. Overall, our hardwood sales realizations were flat at $528 per ton quarter.

Richard Short: The average price gap in China between softwood and hardwood pulp narrowed by $56 per ton this quarter to approximately $130 per ton. The average net price for eucalyptus hardwood in the fourth quarter was $540 per ton, which is an increase of $37 from the third quarter. In North America, the average list price was flat compared to the third quarter at $1,198 per ton. As mentioned previously, the fourth quarter included a $23,000,000 non-cash inventory impairment primarily driven by low pulp prices and high fiber costs. Of this amount, approximately $15,000,000 was attributed to softwood inventories and the remainder was against hardwood inventories. Pulp sales volumes in the fourth quarter increased by 20,000 tons to 472,000 tons.

Pulp production remained relatively stable in the fourth quarter at 460,000 tons. However, if we adjust for planned downtime, our production volume improved by about 20,000 tonnes. We had a total of 21 days of planned maintenance at our Stendal mill in the fourth quarter, which reduced production by 42,000 tonnes, compared to the third quarter when we had a total of 20 days of planned downtime at the Celgar and Rosenthal mills, which reduced production by about 21,000 tons. In 2026, we do not have any planned maintenance downtime in Q1. In Q3, Rosenthal will be down for 14 days and Peace River will be down for about 10 days. In Q4, Celgar will be down for 20 days.

Overall, we expect to see almost 50 days less planned maintenance downtime compared to 2025. For our solid wood segment, lumber pricing in the fourth quarter modestly decreased compared to the third quarter in the U.S., as weak demand was only partially offset by reduced supply. In Europe, pricing was stable in the fourth quarter compared to the third quarter. The Random Lengths U.S. benchmark price for Western SPF Number 2 and Better averaged $422 per thousand board feet in the fourth quarter, a decrease from $477 per thousand board feet in the third quarter.

Today, that benchmark price for Western SPF Number 2 and Better is around $448 per thousand board feet, a $46 increase from the fourth quarter of 2025. In the fourth quarter, lumber production decreased by about 6% to 109,000,000 board feet from the third quarter. This was primarily due to reduced sawlog availability and reduced production during the holiday season. Similarly, lumber sales volumes decreased to 103,000,000 board feet, a drop of about 7% from the third quarter, which mirrored the lower production. Electricity sales in the fourth quarter totaled 202 gigawatt hours and pricing was about $105 per megawatt hour, which is about the same as the third quarter.

Fiber costs for both our pulp and solid wood segments were relatively steady in the fourth quarter compared to Q3. In Q1 of 2026, we are expecting fiber costs to increase in both Canada and Germany, caused by supply constraints resulting from reduced sawmilling activity. In addition, Germany will also be impacted by seasonal demand for fiber from the biofuel industry. Our mass timber operations within the solid wood segment had modestly higher revenues in the fourth quarter compared to the previous quarter. In Q4, the elevated interest rates in the U.S. continued to be a drag on overall market momentum. However, our mass timber business has developed a healthy order book.

Today, the order book totals about $163,000,000, which compares nicely to our order book of approximately $80,000,000 at the end of Q3. We currently expect our 2026 mass timber revenue to be about $120,000,000. We continue to make progress on our One Goal 100 program. As a reminder, this initiative focuses on cost reduction and operational efficiencies, with a target to improve our profitability by $100,000,000 by 2026 using 2024 as a baseline. We realized approximately $30,000,000 in cost savings and improvements in 2025. In the fourth quarter, our aggregate liquidity improved by over $54,000,000 to $430,000,000, comprised of about $187,000,000 of cash and $243,000,000 of undrawn revolvers.

This improvement in our liquidity was the direct result of our working capital management and cost reduction activities. In the fourth quarter, we invested a total of $ million of maintenance capital across our facilities. We reported a consolidated net loss of $309,000,000 for the fourth quarter, or $4.61 per share, which includes the non-cash long-lived asset and inventory impairments, which aggregate to roughly $239,000,000, or $3.57 per share. In the third quarter, we reported a net loss of $81,000,000, or $1.21 per share. That ends my overview of the financial results. I will now turn the call over to Juan Carlos. Thanks, Rich. Our operating results continue to be undermined by significant market headwinds.

The ongoing downcycle conditions forced us to recognize non-cash

Juan Carlos Bueno: asset impairments, including a write-down of our Peace River mill’s fixed assets. And while these non-cash impairments will understandably dominate headline results, the fact is that underlying operational performance improved quarter over quarter. Cost reductions, efficiency improvements, and working capital reductions contributed to the $54,000,000 improvement in our liquidity, and we remain focused on improving the controllable drivers of performance. This focus is highlighted through our One Goal 100 program. Launched in Q2, it has yielded about $30,000,000 of concrete results for the full year, and we are on track to achieve our goal of $100,000,000 in improvements by 2026 when compared to our 2024 baseline.

As Rich mentioned, the non-cash impairment of our Peace River mill was the result of us being subject to U.S. GAAP rules. Unfortunately, these rules do not allow us to take into account two very important projects that our team has been working on for a couple of years already: our carbon capture project and the expansion of the mill’s fire energy output with support of the government, projects that will be transformative for the mill. Previously, we had announced our plans to install a carbon capture demonstration unit at our Peace River mill in the fourth quarter as part of a joint development project with Svante Technologies.

I am pleased to report that the pilot plant is operating, and the results so far are very encouraging, both in terms of the efficiency as well as purity of the CO2 being captured. The results of the six-month testing period of this demonstration unit will be instrumental in our decision-making process for future phases of this project. This venture is not only important for the Peace River mill, but will be one of the steps in our journey to transform our pulp mills into biorefineries with multiple sustainable revenue streams.

Turning to the overall business environment, the trade war headwinds have created an unprecedented level of market uncertainty that persists even though current tariffs appear to be stable for now. We are expecting further tariff uncertainty as CUSMA is to be renegotiated in June. The majority of the trade-related impacts we have faced are due to the indirect impacts of tariffs and trade uncertainty. As it stands today, the only tariff barrier we are facing is a 10% tariff on our European lumber imports into the U.S. This does, however, compare favorably to Canadian imports, which today face an average combined tariff and duty rate of approximately 50%, varying by company.

As a result, we have already seen Canadian lumber curtailment announcements and expect more to come. This is creating a reduced supply of residual chips for pulp mills and is putting pressure on fiber costs. We feel our Celgar mill is well positioned given its ability to access the U.S. fiber market and our ability to harvest and process whole logs. Nonetheless, we are experiencing some fiber cost inflation as expected. As mentioned, our main import from the U.S. into Canada is wood chips for our Celgar pulp mill, which today amounts to about 45% of the fiber consumption of the mill.

We feel this is a competitive advantage for us, and we have the ability to grow this percentage going forward if required. Most importantly, there are no counter-tariffs applied to this fiber. Our EBITDA of negative $20,000,000 reflects 21 days of planned maintenance downtime at our Stendal mill, low prices in most of our markets, and high fiber costs. Overall, NBSK pulp markets weakened in the fourth quarter, including in North America, reflecting the indirect effects of the evolving tariff environment. Specifically, North American fluff pulp, previously shipped to China primarily for diaper applications, is now subject to a 10% tariff.

Consequently, Chinese manufacturers are pivoting to other products, and displaced North American fluff pulp is now being redirected into paper applications, adding supply pressure and weighing on the North American market. Chinese NBSK prices were also under pressure as weak paper prices pushed certain producers to opportunistically substitute and run their machines more slowly. Meanwhile, European NBSK prices were relatively stable. Now turning to hardwood, prices in China increased in the fourth quarter driven by improving demand and higher domestic fiber costs. Meanwhile, in North America, hardwood prices were flat. Looking ahead, we expect to see some modest NBSK and NBHK price improvements in Q1 in both Europe and China, while North America is expected to be stable.

However, trade uncertainty continues to be an overhang on this business, and until trade restrictions are reduced, the supply-demand dynamic will be heavily influenced by the supply side. In total, our pulp production was flat at 460,000 tons compared to Q3. This result reflects an overall production improvement given that we lost roughly 42,000 tons due to Stendal’s Q4 planned maintenance shut compared to only 21,000 tons of planned downtime in Q3. Our lumber production was down about 6% relative to Q3 due to reduced production during the holiday season and the availability of sawlogs. Overall, we are pleased with our lumber production. Pulp fiber costs were essentially flat relative to Q3.

In Canada, our wood cost did not change, but in Germany, the increased demand for pulp logs and sawmill residuals and lower supply of sawlogs pushed fiber prices up slightly for both our pulp and sawmills. Looking ahead to Q1, we expect fiber cost to increase meaningfully for both our pulp and sawmill businesses. Our pulp business will be impacted by reduced sawmill residual availability, and our German pulp mills will also face increased seasonal competition for wood chips from biofuel producers and reduced sawmill chip supply. In Germany, we expect harvesting levels to improve as the lumber market improves, while in Canada, lower fiber availability will keep price pressure on fiber unless the demand side of the equation changes.

The business environment for our solid wood segment was consistent with Q3. It continues to be held back by a weak European economy and the impact of high mortgage rates, with seasonal construction slowdown in Q4 creating modestly weaker pricing in the U.S. lumber market. The stagnation of the European economy continues to dampen the demand for pallets, and the result of this very adverse business environment is the main reason behind the $11,000,000 EBITDA loss of our solid wood segment in Q4. Given the many economic forces affecting U.S. construction activity, U.S. lumber pricing could be volatile in the short term, while demand is expected to remain weak in Q1.

In contrast, we expect modest upward pricing pressure in the European market, primarily due to increasing sawlog prices. Any meaningful long-term improvement in either the European or U.S. markets remains dependent on improved economic conditions and lower long-term interest rates. Our flexible sawmill production capabilities enable us to be competitive in all lumber markets. We intend to continue to maintain a strong presence in Europe and the U.S., serving the quality-sensitive Japanese market. In Q4, 41% of our lumber volume was sold in the U.S. Looking forward, we believe the U.S. lumber market will be driven by favorable homeowner demographics. This, combined with reduced North American lumber capacity, will create a supportive supply-demand dynamic in the midterm.

European shipping pallets markets remain weak, with pricing staying generally flat due to the overhang of the European economy, particularly in Germany, and we are expecting generally stable pricing in 2026. Biofuels

Richard Short: were

Juan Carlos Bueno: up almost 10% relative to Q3 due to seasonal demand, and the prices may still increase slightly. With regards to our mass timber business, revenues were up roughly 6% compared to Q3. We continue to see a steady volume of incoming project inquiries in terms of both number and total dollar value of projects. As a reminder, the projects we are bidding on and winning today are meant to be constructed in average about nine months from now, or well into 2026. We expect 2026 revenues to be more than double what we had in 2025, or above $120,000,000.

As a result, we will begin ramping our Conway facility to two shifts in early Q2 and expect to do the same at Spokane late in the year. Today, our mass timber backlog of projects sits at about $163,000,000, practically twice where we were at the end of Q3. It is clear that a large portion of the growing interest in mass timber is coming from data center hyperscalers. The appeal to this group is the speed of construction, which can be about a third shorter than traditional construction methods, as well as the carbon sequestration benefits that only mass timber brings.

More importantly to Mercer International Inc. is that our industry-leading North American capacity leaves us well positioned to meet this growing demand. As a result, we are confident in this business being a growth engine for Mercer International Inc. in the short term. We have roughly 30% of North American cross-laminated timber production

Operator: capacity.

Juan Carlos Bueno: A broad range of product offerings, including design assist and installation services, and a large geographic footprint with manufacturing sites in the Northwest as well as the Southeast, giving us competitive access to the entire North American market. In closing, market weakness is expected to persist in 2026, and as a result, our priority is on maintaining strong liquidity. To do this, our strategy includes further cost reductions, lower capital expenditures, and other working capital measures, along with a commitment to rebalance our portfolio of assets that combined will improve our balance sheet. Above all, we are committed to prudent financial management.

In light of the ongoing economic uncertainties and our focus on liquidity, our planned CapEx spend is about $60,000,000 to $80,000,000 in 2026, and this capital budget is focused on maintenance, environmental, and safety projects. The headwinds facing our industry have proven to be both longer and more severe than many anticipated. However, our experienced management team has navigated through previous commodity downturns, and I am confident that our short-term strategy will allow us to weather this storm. I also believe that the current market conditions validate our long-term strategy that focuses on transforming our pulp mills into biorefineries, with additional revenue streams that can not only help balance our product mix, but grant us further resilience during pulp downcycles.

Our work on our lignin project pilot plant in Rosenthal is a great example, as is the carbon capture pilot plant in Peace River, and the work that we are doing in Stendal on sustainable aviation fuel. As 2026 progresses, we will remain focused on those elements of our business that we can control while implementing our short-term strategy. Thank you for listening. I will now turn the call back to the operator for questions. Thank you.

Operator: Thank you. To ask a question, please press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. Please standby while we compile the Q&A roster. We will now open for questions. Our first question comes from the line of Roger Spitz with Bank of America. Your line is now open. Yes. Thank you very much. Hopefully, you can hear me okay.

Roger Spitz: The first question, Rich, is can you say how much headroom that you have under any of your maintenance covenants as of December 31?

Richard Short: Yeah. So we have got—yeah. I do not have the number in front of me, but we are comfortable that we are well under the covenants at the end of the quarter, but we will expect them to tighten as the year progresses given the weak outlook.

Roger Spitz: Great. And then secondly, I do not know if you want to comment in addition to 2026 CapEx, but cash interest, cash taxes, and any working capital view, inflow or outflow?

Richard Short: So we are expecting taxes to be negligible this year, interest to be around 120, and you heard Juan Carlos with the CapEx number 60 to 80.

Roger Spitz: I am sorry. I must have misspoke. I was thinking about working capital inflow or outflow.

Richard Short: Oh, it will be a net outflow, probably around $100,000,000 to $150,000,000 at this point.

Roger Spitz: It will be an outflow of 100, 150 million? What would be driving that?

Richard Short: We are going to have—well, obviously, it is the interest, the CapEx, and probably a small net outflow on working capital for the year.

Roger Spitz: Oh, okay. I was just thinking working capital itself as opposed to for some taxes and CapEx. Are you including that in when you gave the 100 to 150?

Richard Short: Yep.

Roger Spitz: Okay. So I have got to net that out. Okay. Got it. Thank you very much.

Operator: Thank you. Our next question comes from the line of Sean Steuart with TD Cowen. Your line is now open.

Sean Steuart: Hoping you can give us some updated thoughts on potential asset recycling opportunities,

Sean Steuart: as a measure to, I guess, expedite potential deleveraging of the balance sheet? And with some flexibility on available liquidity here, any thoughts on asset closure potential and maybe costs that would be associated if you are taking potential pulp lines down.

Juan Carlos Bueno: Yes, Sean. In terms of asset sales or restructuring, it is a subject that we have been analyzing and working on for quite some time now. Obviously, we are very conscious that in the very trough conditions that we are working in right now, the possibility of claiming reasonable value for any particular asset in this cycle is not the right time. But we are obviously looking into that as we focus on our core assets and see our way through this trough, but that is at the center of our debt reduction plans without a doubt.

Sean Steuart: Okay. Thanks for that detail. And with respect to the build-up of the order file for mass timber, which is encouraging, can you give us a sense of expected margins associated with that uplift in sales?

Juan Carlos Bueno: Yes. What I can say in that sense is when you look at 2025, which was relatively low, we were basically

Sean Steuart: working with small projects all around.

Juan Carlos Bueno: That year, even though it was a low sales result, it was a neutral cash flow. So the business was able not to be a drag despite the fact that it was still low on sales. Now for this year, obviously, we expect that to change, with sales, as we said, north of $120,000,000

Sean Steuart: and

Juan Carlos Bueno: positive profitability and, obviously, with the contribution to cash. So we are still in the single digits, as this business has the potential to grow up significantly with the asset base that we have, considering that this $120,000,000 that we are talking about is with Conway ramping up to two shifts only around April or so in the second quarter, and Spokane only ramping up to the two shifts maybe by the end of the year. So for the majority of the year, we would be running, let us say, on average, a shift and a half. So, again, still single digits under that.

But once we are running in two shifts on both facilities, obviously, we would be looking at a double-digit profitability for that business. And we are very encouraged by the growth that we are looking at. Notwithstanding the fact that we have $163,000,000 in the order book that we mentioned earlier, a part of that is obviously going to happen in 2026. But we already have quite an important piece of business for 2027 in that order book. So again, it is filling up very nicely, and we are very confident of the growth that we will have in this business.

Sean Steuart: Okay. That is great detail. Thanks for the context. That is all I have.

Operator: Thank you. As a reminder, to ask a question at this time, please—next question comes from the line of Edward Bruckner with Barclays.

Edward Bruckner: Hey. Thanks for taking the question this morning. My first one is on Peace River. Is there any thought

Richard Short: to

Edward Bruckner: potentially closing the mill

Edward Bruckner: and if so, what is the timing of doing something like that? And are there any approvals from the government or hurdles that you have to go through to close a mill like that.

Juan Carlos Bueno: Well, on Peace River, what we are working on is our transition from less hardwood to more softwood. That is central and foremost because we believe that we can extract much more value from the mill if we produce softwood over hardwood. And we are well underway on that road. Remember this was a mill that was 80/20 to hardwood. Right now, it is 70/30. And by the end of this year, we expect it to be 50/50. And it makes a big difference because we make money on softwood. We do not make money on hardwood, obviously depending on the price of hardwood.

Beyond that, when you look into the work that we are doing or that we have been doing, we mentioned these energy projects. Those would be very important contributors to the bottom line of Peace River. There is government support for those. And also the carbon capture, which is further down the line. That is probably two years ahead of us, or three years ahead of us, and that would be another important contribution to the profitability of the mill. So we do have a way through for this mill, and are working actively with the government to support these projects to support the mill, so that we can keep it

Sean Steuart: and make this

Juan Carlos Bueno: vision a reality.

Edward Bruckner: Got it. And then my second question, just given the difficult market environment as well as potential cash burn for 2026, any new thoughts on productivity with the maturity wall coming up in 2027? And then also, I guess, in 2028 as well.

Richard Short: So, Edward, how are we thinking about the ‘28s and ‘29s? Is your question?

Edward Bruckner: Well, yeah, and the revolver maturity ahead of that. Right. Okay.

Richard Short: So the revolvers—we are talking to the banks, the banking groups for both the ‘28s and ‘29s. We have got some runway there, so we are happy with that given where we are in the cycle. We have been talking with our investors, so I think we are comfortable with where we are with those. And maybe if I could just pivot a little bit. I just wanted to clarify that our expectations around working capital for this year—I think I misunderstood Roger’s question. Expect a modest cash outflow from working capital in 2026.

Edward Bruckner: Got it. Thank you.

Edward Bruckner: Thank you.

Operator: Next question comes from the line of Cole Hathorn with Jefferies. Your line is now open.

Richard Short: Good morning. Thanks for taking my question. I would just like to follow up on the market dynamics from here. And if we stick to

Cole Hathorn: softwood pulp to begin with,

Sean Steuart: we started to see some supply disruptions with, you know, Indonesia,

Richard Short: reducing harvesting permits, might impact the hardwood pulp market. We have seen hardwood pulp

Sean Steuart: narrow the gap to softwood quite nicely. I know inventory levels are still high,

Cole Hathorn: but we have also got in Europe SCA out with a price hike. I am just wondering how do you see the outlook for the market

Cole Hathorn: Is there

Cole Hathorn: more scope for upward pressure now that the gap to hardwood has narrowed?

Juan Carlos Bueno: Cole, I think you are absolutely right. These latest developments in Indonesia are very significant. The impact, or the known impact, of APRIL/RGE taking 150,000 tons out of the market as downtime is important. The uncertainty, whether APP’s 1.4 million mill startup might be delayed, also important because that could take away 650,000 tons of hardwood in 2026.

Sean Steuart: So, yes, there is

Juan Carlos Bueno: all this impact of rising chip prices in Vietnam and China, and that is happening as we speak, as you well point out. And given that, as you said, now the delta—we reported that the delta between hardwood and softwood, $130 at the end of the quarter—well, it is now $100. So with hardwood pushing up, we do believe that there is a pretty likelihood that we will see improved prices beyond what we have in our forecast, and/or at least much quicker than what we anticipated. We understand that we are now getting into the Chinese New Year.

We understand that means everything slows down a bit, and we have to wait until after New Year’s to see what the effect is. But I think, if anything else, those very, very recent developments tend to indicate a potential upward pressure on prices for both hardwood and, inherently then, for softwood piggybacking on it. So, yeah, it is rather positive.

Cole Hathorn: Let us hope we see that reflect in the futures in the next couple of weeks. Shifting on to the lumber side and particularly, I am thinking about Europe. Now you called out higher sawlog costs and also pulpwood cost, well, I suppose wood chip cost for the pulp mills. It is always less clear how wood cost dynamics develop. I would just like a little bit more color. What are you seeing into Q1? Is this just lack of harvesting that is driving up sawlogs and

Richard Short: and wood chips and pulpwood.

Cole Hathorn: And do you see any kind of turn in this market, or is this a kind of a structurally we should be higher for longer? And the reason I ask that is you have obviously got the Nordic sawlog and pulpwood prices coming down. So I am just wondering how the Central Eastern European wood basket is performing. Yeah.

Juan Carlos Bueno: Yeah, Cole, that is a very interesting dynamic as we are living it right now. Let me start with one of the elements that have a big impact on all of this, and that is the German energy policy. They incentivize the burn of wood for energy purposes, for pellet production, and those kinds of things. And what that creates is obviously a huge market for pellets and biofuels. Because the winter has been as hard as it has been, the prices of pellets have increased dramatically, and therefore they are able to pay any price for residuals, whether it is wood chips or sawdust. They are on the lookout for anything they can buy.

That has an impact on us because when we buy wood chips for our pulp mills, we are now competing with these absurd pellet prices and values that they can pay that are obviously much higher than what we normally pay. So that is one of the elements that is impacting right now our wood chip costs in Germany. Now when it comes to the pulp logs, or the other residuals that we buy from other sawmills, that is dependent on the harvesting in Germany. And the level of calamity that Germany was expecting last year did not happen.

So the harvest that was planned did not happen, and the result of that was a significant shortfall in terms of availability of sawlogs totally in the market. So there you have it. We have less output from sawmills, many of them running at slower speeds or cutting shifts. We suffered the consequences of it in Friesau, had to slow down production at times during the quarter, because there was simply not enough wood to go by, again as a result of this much, much lower harvesting levels, and that creating a pinch. So those are the two main issues behind the fiber dynamic that we see in Germany. It has been different in Scandinavia.

There has been a big storm over there, a big need to pick up what was left over of that storm, so a bigger inflow of fiber. Now the fact that Scandinavia will have now lower prices would at least allow for a little bit less pressure from Scandinavia as they were obviously looking at Germany or surrounding countries for supply before. Now they have plenty to work with what they have over there, so that eases a little bit of the pressure that we will get in our home turf. But overall, it is still a very tough business environment.

That is why we expect fiber prices to increase until we see proper harvest levels come back and after we get through the seasonal aspects of biopellets and biofuels. Obviously, we are in the middle of winter. Once that winter passes, the demand for pellets recedes, and prices will naturally come down. That is a normal cycle for pellets. So that is a little bit of the pressure points.

Cole Hathorn: That is helpful. And maybe if I just run forward with that, hopefully, the cost to your pulp mills come down in the summer periods as the pellet demands decline and hopefully harvesting volumes increase. For the sawlogs, I suppose the other dynamic is price of your products. Potentially, we get pulp prices higher, which would be supportive, but on the lumber side, we have some green shoots, I suppose, with, like, IFO commentary in Germany. There is, off a very low base, construction industries looking a little bit better. Is there anything to call out there?

Are you seeing any lead indicators on the chemical side, or the auto side, or anything on the construction that is giving a little bit more confidence maybe into the second quarter, into the summer period as well.

Edward Bruckner: That is a very good question, Cole. And probably one of the things that

Juan Carlos Bueno: everybody speaks about is, in the case of Germany, the investment that the country has decided to make in matters of defense, with very significant increases versus what had been budgeted in previous years. That is something that will move the German economy as a whole. That is something that we believe will have some impact. However, that impact is not going to be all of a sudden. That is a relatively slower pace of growth that we will see coming, but an important one, for a country that has been stagnant and stuck in a recession for already three years, which, again, is very uncommon for Germany.

So we do see that there is a little bit of hope in that regard, that there is a little bit of improvement coming, but it is not something that would happen overnight. We just see a gradual improvement over there, whether it is in construction activity. Obviously, we keep an eye very much on the U.K. That is a market that we serve quite a bit, that has been very good for us and where we dedicate a lot of resources and energy. Our prices in the U.K. tend to be higher than what they are in Germany, so that is a market we privilege.

Just as the market in Japan, we do as much business in Japan as we can, as obviously the margins there are even better, and we are able to deliver the high-quality product that they need. The U.S. remains to be the valve. When prices are high and they are trending higher, we can pivot to the U.S., and we have done that many times before.

Richard Short: I think in

Edward Bruckner: in

Juan Carlos Bueno: times that we sell more volumes to the U.S., we are close to 60%, 55 or more of volume into the U.S. We are right now at 41%. But the prices over there are increasing, and despite this 10% tariff that we have, as we mentioned before, we believe we are pretty competitive into that market. So I think there is some positive momentum on prices overall in lumber for the year. That is what we would tend to expect.

Cole Hathorn: Thank you. I will get back in the queue.

Operator: Thank you. Our next question comes from the line of Dominic Gerster with Aperture. Your line is now open.

Richard Short: Hi there.

Cole Hathorn: Thank you for taking my question. Could you please comment on the extension of your

Juan Carlos Bueno: two RCFs, how those discussions are going with lenders, and when you are expecting those to be concluded.

Roger Spitz: Well, we know these are going to be more expensive.

Richard Short: I think the banks have their things that they want to change in the indentures, but I would say, overall, the conversations are going well.

Dominic Gerster: Thank you. That is helpful. And do you have any indication of when you are hoping to set this up?

Juan Carlos Bueno: Timing wise?

Richard Short: That is a good question, but before the end of Q2, for sure.

Dominic Gerster: Understood. And then one final question. Anything on size you can comment? Will they be the same size as the current facilities? Any additional color would be helpful.

Richard Short: Yeah. I think that is one thing we are talking about. I think there is a bit of a push to reduce overall capacity slightly, but not to a level that we are uncomfortable. But, obviously, more liquidity for us is better.

Dominic Gerster: Understood. Thank you.

Operator: Thank you. Our next question is a follow-up from Cole Hathorn with Jefferies. Your line is now open.

Cole Hathorn: Thanks for taking the follow-up. I just wanted to ask around the point you made around pellets and the energy

Edward Bruckner: consumption.

Cole Hathorn: We are seeing industries lobby more and more to prevent imports and trade barriers. And when there is a dislocation, it does seem like the priority of use should first be for wood sawn wood products, then the downstream pulp industries before you get into energy. Is there any lobbying ongoing by the pulp and paper industry to prioritize that to keep your raw materials a little bit lower rather than get pushed out by energy? It is the first one. And secondly, there has been a lot of debate now around lower CO2 costs in Europe, and the CO2 prices come down.

Does that position you a little bit more favorably, or was it not really an item of consideration?

Juan Carlos Bueno: Cole, very important questions, and the answer to the first one is absolutely yes. We are absolutely contrary to the policy of the German government of

Sean Steuart: promoting

Juan Carlos Bueno: the use of wood for biofuel purposes straight off. It does not make any sense in our minds. We privilege very much the fact that we need to extract the highest value of the harvests that we make, and it should only be based on residuals that the pellet industry should operate on. And there has been a lot of lobbying effort on that end. Unfortunately, there are a lot of forces that

Dominic Gerster: that

Juan Carlos Bueno: are not necessarily aligned. There are other interests from other parties that are contrary to ours. But we stand by our belief that, from a pure environmental perspective and value capture perspective, the right thing to do is what we are promoting and what we are advocating for. In terms of the CO2, as you say, yes, that is another part of the equation that we emphasize and that we have a line of communication with government on a regular basis to make sure that the fact that we have biogenic

Dominic Gerster: carbon

Juan Carlos Bueno: in our operations, that we have electricity that we generate by biomass sources, it is all taken into consideration when looking at all these CO2 emissions and credits and whatnot. And we are actively advocating for the proper allocation of those credits and the maintenance of those credits over time, rather than a reduction of them, precisely on the back of the type of business that we run that is very much in line with what the government is pushing for in terms of environment protection.

Cole Hathorn: And then I have a question from an investor here that we are asking to everyone that has sawn wood business in Europe that were not able to give me a perfect answer, and I hope you can just kind of add some color to it. It might be too far out.

Cole Hathorn: But what we are seeing at the moment is we are seeing steel prices move up higher because of CBAM, plus we are seeing import tariffs on steel driving ultimately steel prices higher. We are also seeing cement prices higher. Historically, there always used to be this good correlation between sawn wood, lumber, steel, and cement because you are all involved in the construction material space. Do you see longer term any form of kind of pricing umbrella that might shift the industry to use more wood, considering it is only 5% of building materials outside of the Nordics in Europe? Is there something that you are tangibly seeing now or that you see in the future?

Or is this just a too long-dated positive to be relative in your near-term thinking?

Juan Carlos Bueno: I think the evolution of the use of wood for construction substituting steel and concrete is something that we will see coming. That is already happening. It just happens to be a very small fraction of the pie. Obviously, steel and concrete is the bread and butter of the construction industry and has been for decades, and changing that ship takes time. But when you look at Europe in particular, let us talk about mass timber in Europe where we do not participate. That is a business that grows double digit per year. It is growing, I think, at 11% per year now. So there is an important growth on that element, and that, again, is substituting concrete and steel.

When you look at that same growth in North America, we are talking about 22% to 24% per year. And that is why we believe so much in the future of our mass timber business in North America, because there is a tremendous push for it, and there are all the reasons, whether it is in construction cost, environmental, just the speed of construction, the amount of labor that you need. Think about North America right now with all the political environment that we are facing, deportations and whatnot. Labor for construction is a very significant issue, and we offer a solution for that problem.

The amount of labor that is needed for mass timber construction is absolutely a fraction of what normal construction projects with concrete and steel would demand. So there is an alternative. There is a solution. It is more cost effective now without any doubt to construct or build with mass timber, but it takes time for developers and architects to understand mass timber. This is not something that everybody knows about. It is something that only with time and experience people will believe and catch up on it.

But, again, the 20% growth year over year is already proof that there is a good chance that we will see that market flourish and that umbrella, as you say, shifting a little bit and giving some space for mass timber to develop and substitute traditional construction methods.

Richard Short: Thank you.

Operator: Thank you. And this concludes the question and answer session. I would now like to hand the call back over to Juan Carlos Bueno for closing remarks.

Juan Carlos Bueno: Okay. Thank you, Shannon, and thanks to all of you for joining our call. Reach out. IR are available to talk more at any time, so do not hesitate to call one of us. And otherwise, we look forward to speaking to you again on the next earnings call in May. Bye for now.

Operator: This concludes today’s conference. Thank you for your participation. You may now

Dominic Gerster: disconnect.

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