Resolute Forest Products Inc.
Q1 2016 Earnings Call Transcript

Published: 9 May 2016

[Operator:]

Good morning, ladies and gentlemen. Welcome to the Resolute Forest Products First Quarter 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the presentation, we will conduct a question-and-answer session. [Operator Instructions] Please note that this call is being recorded today, Thursday, May 5, 2016 at 9

[Alain Bourdages:]

Good morning. Welcome to Resolute's First Quarter Earnings Call. Today, we'll hear from Richard Garneau, President and Chief Executive Officer; and Jo-Ann Longworth, Senior Vice President and Chief Financial Officer. You can follow along with the slides for today's presentation by logging on to the webcast using the link in the presentations and webcast page under the Investor Relations section of our website or you can also download the slides. We provide additional financial and some information including a reconciliation of non-GAAP financial measures in our press release and in the slides. As always, certain subjects we will cover involve forward-looking information are statements are based on our current assumptions, beliefs and expectations, all of which involve a number of business risks and uncertainties, and accordingly can change as conditions do.

[Richard Garneau:]

Good morning, everyone and thank you for joining us today. We generated adjusted EBITDA of 59 million for the quarter compared to 41 million in the fourth quarter of last year. The stronger quarter-over-quarter gains were realized in our paper businesses, especially newsprint while market pulp activities remain our highest EBITDA generating segment despite relative softness in pricing during the quarter. By segment, we generated adjusted EBITDA of 27 million in market pulp down by 3 million from the fourth quarter, zero from our tissue operations unchanged from last quarter when we had only 45 days of the result 3 million in wood products, also unchanged from last quarter, 15 million in newsprint up by 12 million and 20 million in specialty papers up by 5 million. Although we realized some pricing recovery in our newsprint and wood product segments, those gains were offset by weaker markets for pulp and specialty papers. Underpinning most of our overall EBITDA gains were favorable FX impact as well as marked reduction in our manufacturing cost. The $0.02 average decline in the Canadian currency against the U.S. dollars in the quarter resulted in a gain of 12 million compared to the last quarter of 2015. Improvements in input costs were mostly derived from growing quarter-over-quarter contribution from our co-generation activities, and lower overall energy and maintenance cost. During the quarter, we began integrating the Atlas tissue operations. We're confident that we will be in a position to deliver better results in the coming quarters. We will discuss our tissue segment in more details in a few minutes. Let's review market conditions and segment performance. World demand for chemical pulp grew by 3% in the quarter compared to the same period in 2015, including a reduction of 2% in North America, an increase of 10% in China, a decline of 7% in Latin America and flat in Western Europe. World capacity grew by about 4% in that time, mostly reflecting the significant expansion of Latin American hardwood capacity. The world demand for softwood was up by around 4% in the quarter. This reflects a 2% increase in shipments in North America and a 13% increase to China, partially offset by a 2% decrease to Western Europe. In the same period, demand for hardwood was up by about 1% with shipment to China up by 7% and Western Europe by 1%, but down by 7% in North America. All of the growth in hardwood demand, approximately 100,000 metric tons, was in the eucalyptus grades, which represent more than 70% of global hardwood pulp demand in the quarter. Even as list prices remain flat for softwood, the average transaction price in the market pulp segment decreased by 22 per metric ton in the quarter. Our shipments were 16,000 metric tons higher in the quarter, mainly for softwood and recycled bleached craft due to productivity gains in some of our softwood mills and increased demand for the RBK and despite a scheduled maintenance outage at our Catawba facility in March. Our inventories rose by 4,000 metric tons over the same period. Even given the weaker pricing, our market pulp EBITDA dropped slightly. Our new pulp digester in Calhoun is now operational and reached 89% of expected output during the first quarter and its ramp-up continues. I will note that this project was delivered on budget and ahead of original schedule. We continue to believe in strong underlying fundamentals for market pulp in the long term. However, we continue to see improving, yet still challenging market condition in the near term, especially in hardwood rates where additional new capacity may create a temporary imbalance of supply and demand. In the first quarter, total tissue consumption in, in U.S. grew by 2.7% against the same period last year. Away from home shipments reported a strongest increase over the period at 3%, while at home volume grew by 1.7%, consumption of peripherals on the other hand increased by 1.9%. Our average transaction price fell by 17 per short ton during the quarter. Shipments increased significantly, resulting from the full quarter of operation being recorded in our results versus only 45 days in the previous quarter. Our cash position was negatively affected by integration related cost unfavorable material usage and higher reliability related maintenance. What is all however achieved some progress we completed the integration of virgin pulp with our U.S. pulp network in March, while recycled bleached kraft pulp trials continue. In addition, sales volume of retail tissue increased by 22% when compared to the pro forma fourth quarter of 2015 and 83% when compared to the pro forma first quarter of last year. We continue to implement Resolute operating practices at Atlas in order to improve both productivity and the cost structure going forward. During the quarter, we spent 32 million in our Calhoun tissue project which remains on schedule. U.S. housing starts remain stable when compared to the last quarter of 2015 at 1.1 million in seasonally adjusted terms, but increased by 16% compared to the same period last year. Our overall pricing in the segment increased by $10 per 1,000 board feet in the quarter, in response to unfavorable pricing in eight-foot stud markets, we curtailed production by 33 million board feet in our Saint-Thomas in Atikokan sawmill. Although long-term market perspective in lumber are generally favorable, the ongoing trade unsurety between Canada and the USA is a source of concern. As I explained to the Canadian Parliament Standing Committee on International Trade in April, we firmly believe that any element that would have justified trade restriction on softwood lumber in Quebec has been fully eliminated. In the case of [Ontario], the Chapter 19 decision rendered in 2005 confirmed that wood costs were not subsidized in that product. Given this, we believe that softwood lumber from Central Canada should be freely competed in the U.S. marketplace. North American demand for newsprint fell by 5% in the quarter. While the industry shipments overseas increased by 1% for the same period, global demand trends remain negative through March at minus 5%. This represents a significant improvement from the 12% decline of [short] in Q1 of 2015. The combination of these factors and the reviews, the reduction of West Coast capacity in Q4 of 2015, resulted in a shipment to capacity ratio of 92% for the quarter. During the quarter, we successfully implemented the prices increases of US$40 and CAD$45 in the United States and Canada respectively. Over the same period, 40% of our production was shipped to overseas markets, where conditions remain challenging, as well as the currency values and delayed pricing recovery negatively impacted our profitability, which partially offset the gains we made in North America. The aggregated increase in price for the entire segment was $11 per metric ton versus the fourth quarter. This gain was largely mitigated by a reduction in our sales volume of 32,000 metric tons or 6%. However, with that improvement, the EBITDA increased from 3 million to 15 million. This morning we announced the permanent shutdown of the paper machine number one at our Augusta facility. Despite the improved market conditions in newsprint, the underlying fundamentals and currency environment remain challenging from the, for some U.S. mills. Although decisions of this nature are never taken lightly, this machine closure was necessary to avoid costly rating downtime. Demand for uncoated mechanical paper in the first quarter was down by 4% in North America, supercalendered paper were down by 8%, while standard grades were up by 1%. Industry production in the quarter was down by 8%, keeping operating rates of around 88%. North American coated mechanical demand was down by 9% in the first quarter compared to the 18% decline in the fourth quarter of last year. North American production was also down significantly by 110,000 short tons, which represent a reduction of 16%. Consequently, operating rates in North America rose to 95% for the quarter. However, we maintain our belief that our coated business will continue to face significant challenges in the short term as a result of increased imports. This trend is reinforced by continued weakness of the Euro against the U.S. dollars, as well as decline of 7% in Western European demand for coated mechanical paper in the first quarter. Pricing for the segment continues to be under pressure. Our overall transaction prices in the segment fell by $11 per short ton, coming mostly from coated and SC grades. Our volumes were relatively stable, even though the first quarter has generally the cyclical low. Due to a reduction in all cost, notably in energy and through a greater contribution from our cogeneration facilities, we increased EBITDA by 5 million against the last quarter. For the rest of the year we will pay particular attention to four key elements. The first one, we have announced further price increases in the U.S. of $15 per metric ton in June and another $15 per metric tons in July. Second, we will continue to develop our new tissue segment through four main activities, mainly the implementation of Resolute operating practices, the integration of RBK pulp at the Miami facility, the acceleration of our sales efforts as we approach the end of service date of the Calhoun converting operation and tissue machine, and of course the timely delivery of the project itself. Third, we will achieve the full potential of the Calhoun continuous digester and increase hardwood market pulp production, which will also lower cost. And lastly, we will continue to increase productivity at our sawmills in Atikokan and Ignace. Now, Jo Ann will review our financial performance.

[Jo Ann Longworth:]

Good morning, everyone. Today, we reported a net loss of 18 million for the first quarter or $0.20 per share, excluding special items compared to a net loss of $26 million in the previous quarter and 19 million for the same period last year. Total sales in the first quarter were 877 million, down by 17 million compared to Q4 2015. Gains in pricing for wood products, $10 per 1,000 board feet and newsprint, $11 per metric ton, were offset by reductions in other segments. More specifically, pulp prices fell $22 per metric ton, tissue by $17 per short ton and specialty papers by $11 per short ton. In total however, lower net pricing unfavorably affected result by only $2 million compared to the fourth quarter of last year. Shipments of pulp increased by 16,000 metric tons in the quarter. Our tissue shipment also increased significantly, owing to a full quarter of ownership of the Atlas operation. Conversely, volume for newsprint, specialty papers and wood product all declined versus the last quarter by 32,000 metric tons, 5,000 short tons and 56 million board feet respectively. Our cost of goods sold declined by 52 million in the quarter compared to Q4. Excluding the impact of foreign exchange of 11 million and reduced volumes of 6 million, the key reduction in cost were as follows. A 14 million nonrecurring pension settlement charge recorded in the fourth quarter of 2015, a 7 million decrease in non-operating pension and OPEB expenses due to the 438 million reduction in the balance sheet net pension and OPEB liability during 2015, 5 million of higher contribution from cogeneration facilities and 3 million of lower natural gas and power cost. It should be noted that the two pension related items have no impact on adjusted EBITDA. Our net income for the quarter was positively affected by a non-cash gain of 6 million on foreign currency translation and 7 million of other income derived mostly from the sale of our equity interest in a Quebec saw mill. Compared to the fourth quarter, market pulp all in delivered cost was down by $31 per metric ton, mostly as a result of efficiency gains, favorable foreign exchange as well as decline in depreciation and amortization following a review of the estimated economic useful lives of our fixed assets. Given weaker pricing however, EBITDA per metric ton fell by $12 per metric ton to $77. The delivered cost in the tissue segment increased by $104 per short ton. This increase was mostly due to one-time integration-related cost, unfavorable material usage and higher maintenance cost. In wood products, the delivered cost rose by $7 per 1,000 board feet due to seasonally higher fiber usage and a lower internal chip transfer price, which offset favorable foreign exchange impact, as well as lower depreciation and amortization. EBITDA rose slightly to $8 per 1,000 board feet. Newsprint delivered cost went down for the sixth consecutive quarter, reaching $504 per metric ton. A number of items fueled this reduction, notably, higher contribution from cogeneration assets, the weaker average Canadian dollar, and lower fuel and power cost, which came mainly from a CAD3 million recurring benefit from the reduced power rates of Quebec's North Shore to compensate for higher costs related to processing spruce, spud worm, infested wood. Consequently, EBITDA per metric ton rose by $24 to $29 in the quarter. In specialty papers, the delivered cost fell by $35 per short ton. Similar to newsprint, the segment benefited from favorable foreign exchange and greater contribution from cogeneration activities as well as reduced maintenance costs, and lower depreciation and amortization resulting from the asset impairment recorded at our Catawba facility in the last quarter of 2015. As a result, EBITDA per unit rose by $13 to $51 per short ton. Due largely to increased output in our Dolbeau and Thunder Bay cogeneration facilities compared to the last quarter, our external power sales increased, leading to an improvement of $5 million in EBITDA. Cash and cash equivalents flipped by $21 million in the quarter to $37 million, which reflected net cash from operating activities of $6 million compared to capital spending $47 million; $32 million of which was spent on our tissue project in Calhoun. As previously disclosed, we made up that shortfall by drawing $20 million under our revolving credit facility. We expect that further use of our credit facility may be required later in 2016, but we do not foresee a drawdown of more than $150 million for the year as previously disclosed. Further pricing increases will mitigate the need for additional liquidity in the shorter term. As of March 31st, our liquidity was healthy at $443 million. As previously mentioned, pension and OPEB expenses decreased by $22 million compared to the previous period while our contributions rose by $3 million reaching $30 million, mainly due to the timing of U.S. payments. The net pension and OPEB liability on our balance sheet increased by $23 million at quarter end and now sits just above $1.2 billion. This change was largely the result of the stronger Canadian dollar at quarter end, offset by our regular contribution. The guidance we provided last quarter for 2016 full-year pension and OPEB payments remains unchanged.

[Alain Bourdages:]

Operator, we will now open the call for questions.

[Operator:]

[Operator Instructions] Your first question comes from the line of Sean Steuart from TD Securities.

[Sean Steuart:]

A couple of questions, can you give us the capacity of PM1 at Augusta and any related closure cost you're expecting in the coming quarters?

[Richard Garneau:]

Well, the capacity is about -- well it's 189,000 metric tons and Jo-Ann is going to cover the closure cost.

[Jo-Ann Longworth:]

The closure costs are expected to be about $20 million, that's net of a pension curtailment gain of $15 million. Within that, there's about $3 million of cash cost.

[Sean Steuart:]

And Richard, on North American newsprint markets, we've seen a deceleration in the rate of demand decline for several months now. Can you comment on the sustainability of that trend and how much of this might be grade substitution at the margins, any thoughts on that general trend?

[Richard Garneau:]

Well, certainly it's encouraging to see the deceleration in demands of 5% in North America and 5% global. So I think that we believe that we may be close to the floor that we were expecting three years ago, but I think that with certainly a lot more well a lot more, I think that the increase by the numbers that we're seeing. And one year ago or so, the shipments overseas, they were about 1%, we know that the market is still weak, but it's encouraging to see that the shipments are going up and the operating rate is, well, it's healthy at 92%. So when you take all that into account, I think that there was certainly indication that we may have a well, there's only a better outlook of things to indicate that profitability could be better off in the coming quarters.

[Sean Steuart:]

Understood and then last question for me. Very encouraging pulp cost trends ongoing in that segment. I think I understand all the factors that contributed this quarter. Wondering if you can run through your maintenance schedule for your pulp operations through the remainder of this year and how that might affect your unit cost?

[Richard Garneau:]

Well, in the second quarter we are going to have outages at Calhoun and Coosa Pines and in the third quarter that we're going to have Saint-Felicien and Thunder Bay.

[Operator:]

Your next question comes from the line of Paul Quinn from RBC Capital Markets. Please go ahead.

[Paul Quinn:]

Back in November when you bought Atlas, I think there was a Resolute forecast of annualized EBITDA contribution of 23 million starting in Q1 of 2016 and that included the synergies. Just wondering where that EBITDA is and why haven't you delivered on it?

[Jo-Ann Longworth:]

Thanks, Paul. There's been a couple of things in the first quarter. I think one was just getting our pulp integrated, our virgin pulp from our U.S. network. So that happened completely in March. So we don't have a full quarter with that. I would say additionally, we've had cost one-time cost to integrate and to bring our practices and our maintenance practices to the facilities down there, that's still in progress. And I would say that the sales that we had quote one on the retail side were slower to ramp up than we had supposed. As far as the $23 million on an annualized basis, I think we, it need at least another quarter to be able to confirm that one way or another.

[Paul Quinn:]

Okay. So is that implied that you will sort of hit that 23 million in Q3 or Q2?

[Jo-Ann Longworth:]

That's what I said. I don't know, I think we need another quarter of operations and understanding of the business before we're going to be able to confirm that number.

[Richard Garneau:]

And Paul, I think that we are seeing, what we're seeing is encouraging. So I think that is a new business for us, obviously. And it was important also for Resolute to implement our operating standards and to bring the well, maintenance work, reliability of the equipment to what standard that we are used to, so we spent more money on it. So I think that certainly, I think that we're going to basically see improvement in the coming quarters, and it is also -- and I have to admit that it's a learning curve, we have in the new business here and I think that I am still really happy that we made this acquisition. I guess what we have certainly in management in place then that was challenging. We have management in place that is going to make the Calhoun project more successful. So I think that and when I look at the demand certainly the ROI item when you look at the consumption to the U.S. itself, so I think that we're going to be able to take advantage of it when we address all of the reliability issues that we face since the acquisition.

[Paul Quinn:]

Okay. And then just jumping over to newsprint, you referenced the price increases that you got in place for June, July, is all your main competitors out there in North America got similar increases?

[Richard Garneau:]

Yes. We have announced and I think that we have implemented the 40 and 45 and I also believe that this $30 is going to be implemented also.

[Paul Quinn:]

Okay. Then on the pulp side, it sounds like you're positive in the short-term, no risk in the medium-term, positive in the long-term, you referenced a 4% capacity increase globally in the quarter. What are you forecasting for 2016 in terms of capacity increases in 2017, and is that the reason for your cautious sort of medium term outlook?

[Richard Garneau:]

Well, it's mostly on hardwood, so I think that, when you look at the softwood supply and demand, that's obviously there was a pricing announcement that there was $3 pricing announcement in May 1st and so I think that softwood seems to be pretty well in balance, but it's the capacity in hardwood and it's always difficult to forecast how much new capacity is going to come online. But I think that hardwood, especially we have the digester, the hardwood digester at Calhoun that is going to provide additional capacity, 100,000 tons that we said that we are going to be able to produce. So I think that it's on the hardwood side that we have some, certainly short term, some questions.

[Paul Quinn:]

Okay. And then I think the wood products results were lower than I expected, is that just a result of higher costs in the quarter and I thought shipments would have been higher as well. It is price weakness that you're seeing and that's why you are shutting down facilities?

[Richard Garneau:]

Well, I think that, it's the stud pricing and we took curtailment in our eight-foot stud sawmill, it's 33 million in the quarter, that basically the total outages that we took and I think that we've certainly seen a catch up into stud pricing, and I think that certainly going to we're going to restart these two sawmills by the end of June, they are going to be back in production. So I think that we're not going to have a significant impact in the second quarter, but third and fourth quarter, we expect that we're going to run at full capacity.

[Paul Quinn:]

Okay. Then just lastly, your what's your prediction on negotiations on the softwood lumber agreement?

[Richard Garneau:]

Well, that is the only thing that I am unable to predict. The only point I would like to make, I think, that when [Indiscernible] got the forestry regime in Quebec, so, as I said in previous calls, it's a copy and paste of the many of the states, and U.S. Forest Service auction system. And I think I'm sure you well, there is a discussion in the panel, discussion of Chapter 19 that said that Ontario wood was not subsidized, so I believe that Central Canada should benefit from a free trade access to the U.S. market, but who knows. So we'll see and we're certainly watching all the comments that are made by the politicians in Ottawa and I have confidence that they are going to certainly take into account all the jobs and the northern communities and the rural communities that are going to be affected by this agreement, if there is one. So I am sure that they are taking that into account and looking forward for the best result for Central Canada.

[Operator:]

[Operator Instructions] Your next question comes from the line of Stephen Atkinson from Dundee Capital Markets. Please go ahead.

[Stephen Atkinson:]

When I worked in the industry some 30 years ago, the Quebec [Indiscernible] would put up the wood cost every year, just calling it inflation. I was wondering, can you talk to me about Quebec wood cost, how they are relative to North America and whether the government is still doing that?

[Alain Bourdages:]

Well, I don't think that there are this information is available now. We know that wood cost has increased significantly when we compare it to 2013, the new system and it's one of the reasons why we believe that we should have an unrestricted access to the market, the stumpage, the price that we pay to all this wood is completely market. It's one of the significant factors for the wood cost increase. So this auction system, it is like in the U.S. is probably, I would have to say that that's probably making the Quebec wood probably the highest cost in North America.

[Stephen Atkinson:]

Okay. Because this ties into I was listening to the speech and which I couldn't listen to all of it, but this was by a gentleman by the name of Zoltan, who is the representative for the softwood lumber guys in the States and he was saying that what Canada was doing was protecting jobs and yet, Quebec and possibly Ontario have the highest costs than really what it is exactly the opposite where the number of, should we say the employment is getting destroyed. Would that be correct, yes?

[Richard Garneau:]

Well, I don't think that is the case. When you look at the number of jobs that was lost in Central Canada, Quebec and Ontario was since 2006, it's 20,000 in Quebec and I think it's 14,000 in Ontario. If the government were really protecting job, all these jobs would not have been lost. So I think that the wood is market, and I think that the industry has invested and it is competitive and I think that it's probably really what is driving all this. So we know that our neighbor south of the border are really perfectionists and maybe they don't like an industry that is competing and working hard to be able to see what -- even with high wood costs to continue to be competitive. So I think that we have a condition to, I believe to have access to the U.S. market. Obviously, the Canadian dollar is also a factor so that is helping, but currency is not [comparative] at all, and it fluctuates. Remember, a couple of years ago, it was close to par, so we never know where the Canadian dollar is going to be, so the industry has to complete with the two and with the condition that they have.

[Stephen Atkinson:]

So that in terms of the -- I've been reading about where you've had recognition, but also Canada in terms of the Eastern Canada on the boreal forest, can you bring me up to speed on where we are on some of the recognitions on that?

[Richard Garneau:]

What do you mean the recognition on boreal?

[Stephen Atkinson:]

Well, the fact that Canada is doing a very good job or Eastern Canada is doing a very good job in terms of the harvest, because I mean, on one side you got the environmentalists, well, Greenpeace running around telling customers not to buy pulp from Eastern Canada and at the same time, I believe more recently both of the study at Yale university but, really I believe that the -- should we say, we do have a good balance in terms of the harvest in Eastern Canada?

[Richard Garneau:]

Well, certainly, I think it is supported by the Natural Resource Canada report on the state of the forest. I would encourage everyone, investors, and our customers to read this report, I think that it is clear that not even in Central Canada, but across Canada that the boreal is managed on the sustainable basis. And it is also clear when you look at Quebec and Ontario, you look at the practices that that's been put in place in last 10 years that it's world-class practices that. And if you also look at the, what the customer about the Canadian forest industry, I think or the practices, I think that it's -- and there was a study that's been made lately that have the highest level of confidence on sustainability of the forest. When you look at it in Central Canada, there was a, well it's less than 0.5% of the boreal forest that is harvested every year. So it's 0.5 points less than what is affected by insects, by blowdown, and by forest fire. And well, talking about forest fire, we see what happens when you have endless supply of dry fuel, so we're seeing it now in Alberta. So I think that it's one of the benefit that we have with managed forest, if you have an event, you have a lightning strike and you have a forest fire, so if you have managed forests, then you have less dry supply of fuel, so I think that forest fire are not as an aging as we see in Alberta. So I think that forest management and the practices in Central Canada are recognized everywhere in the world and I think that certainly we are really pleased to see it. And I think that when you look at also the wood, the carbon thing, so how much carbon is stored into the woods, so it's a ton of carbon per cubic meter, and I think that it's stored into a house, into a floor, into a ceiling and into the structure. So, I think the building in the wood is really going to help manage the climate change that we're probably going to have going forward.

[Stephen Atkinson:]

And I know that you're an unpaid environmentalist. Are you able to -- with respect, and so that one of the things, I remember I was discussing with you was the Caribou population? Would you mind updating me on what’s happening on the Caribou population?

[Richard Garneau:]

Well, again on the Caribou, I think that I already mentioned it, there was in Central Canada, Quebec and Ontario, there is more than 40% of the dense boreal that is protected and 75% of the Caribou range is in this part of the boreal forest. And I think that when you look at the Quebec and Ontario and specifically I have an example here, there was a range on the boreal in Ontario and Manitoba that has high disturbance level and the Caribou population is growing faster than where they have lower disturbance level. So I think that there are still more probably science, more observation that is needed for Caribou and I think that Caribou has also affected by climate change and climate change is probably going to continue to push the Caribou population into north. And I think that it means that in the managed forest that we know today we're probably going to see less Caribou because of climate change in the managed forest. So it's all factors that need to by observation and working with our First Nation partners and communities, rural communities in the north to be able basically to have a better understanding of what is happening with the Caribou population.

[Stephen Atkinson:]

Well, thank you. Now that's a great answer. Thank you. So is Greenpeace still trashing pulp from Quebec?

[Richard Garneau:]

Well, certainly they, it's certainly the approach they have to interfere with our customer is certainly causing damages and our strategy is to mitigate as much as we can the damage that they do with our customers. We also have to when you look at our strategy to defend ourselves, so it's not always easy to attract skilled people, so to maintain the morale of our employees, so they have to better understand that the forest is harvested in a sustainable basis and that's a reason why we are defending ourselves against the inaccuracy and also the misinformation that -- well the northern communities, our new policy if you go to the sawmills or you don't have access to the wood, the communities are pretty nervous about their future and I think it is a clear reason why I believe Greenpeace and other activists like them, I think that they have to consider the impact on real people and how it affects their life. And certainly, I would like -- I would certainly like to focus some days on other things than the activists, but I think that certainly for the three reasons I mentioned, that is important that we continue to defend our reputation, the reputation of our employees, and that we always have in mind the communities, First Nation and Northern communities that have basically the boreal as their primary source of living.

[Stephen Atkinson:]

Yes. One of the things on the duty on or maybe preliminary, whatever it is on uncoated paper or uncoated mechanical, to be exact, what is the status of that?

[Richard Garneau:]

Well, again, we would like this to move faster, but the panel, the Chapter of 19 panel is not constituted that yet. It was supposed to be formed within 12 days and now it's five months have passed and it's not done yet. So I think that it really shows that how the commerce basically, they can set very high rate and after they can stall the process and ask to what substantial sum of money and for several months, and well, as we had experience in the lumber for years and they can stall the appointment of panelists and as we have seen in the past, they all they can stall the industry in this case where we are paying about 2 million a month in deposit and we would certainly and we have so many talked to the federal government and insisted on the panel to be appointed as quickly as possible that they can really start to work on it. And I think that we have certainly rate that is not substantiated. And we believe that we have a strong case, but it's so long before the panel is in place, and before a decision is finally taken that it's hurting the industry very much.

[Stephen Atkinson:]

One of the things I noticed was that one of the plaintiffs claiming entry was Madison Paper, UPM's company, and now they've shut it down but that give some option to ship more from Europe. Is there an increase in shipments from Europe in the uncoated? Are you seeing more imports from Europe?

[Richard Garneau:]

Yes, we've seen an increase in imports from Europe. So and I think that well, this really has not been closed yet. So it's going to be in May. So I would probably guess that we're going to see more import coming from Europe. And when you look at the demand in Europe, it's one of the -- Western Europe demand is down 7%. So I think that certainly going to be an incentive to export more into the U.S.

[Stephen Atkinson:]

And Augusta made uncoated paper, I believe, the one you just closed, the PM1?

[Richard Garneau:]

No, it's newsprint.

[Stephen Atkinson:]

Just newsprint? Okay, because I was thinking you could claim entry rather like with uncoated freesheet.

[Richard Garneau:]

No, it's newsprint machine.

[Stephen Atkinson:]

No, no, you know what I mean, yes, okay. Yeah, that's it for me. Short but sweet.

[Operator:]

There are no further questions at this time, I will turn the call back over to the presenter.

[Alain Bourdages:]

Thank you, operator. And thank you, everyone for joining us this morning. This will conclude our call. Thank you.

[Operator:]

This concludes today's conference call. You may now disconnect.