Resolute Forest Products Inc (RFP) 2002 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Abitibi-Consolidated fourth quarter 2002 results conference call.

I would now like to turn the meeting over to Mr. Lorne Gorber, Manager of Investor Relations. Please go ahead, Mr. Gorber.

(audio gap)

... www.abitibiconsolidated.com, where it will be archived with a replay of this call in the IR section.

For the media on the call, we will poll for your question at the end of the investor Q&A session.

Today's call will include some forward-looking statements based on information we believe to be both reasonable and current. These comments will be affected by a number of risks and uncertainties, many of which are beyond the company's control and which may cause our actual results to be materially different from those expressed or implied. Lastly, we won't be updating or revising any of today's call.

So let me turn it over to Pierre to review Q4 and 2002 financial highlights.

Thank you. Good morning, everybody.

As you can see in slide 3 of our presentation, our fourth quarter operating income came in at $18 million after a 12 million pretax write-off for the (inaudible) facility. This compares to operating income of $29 million (ph) last quarter and $151 million in Q4 of 2001. Excluding the 12 million write-off taken in the fourth quarter, operating income improved by 1 million over Q3. This is primarily due to a higher average paper prices, higher newsprint sales volume, offset by higher cost of goods sold and a weaker lumber segment.

So net earnings from continuing operations in Q4 amounted to $25 million, or 6 cents a share. This compares to a loss from continuing operations of $250 million in the third quarter before an after-tax gain from the sale of St. Visi (ph) (inaudible) pulp mill, and a loss of $21 million, or 5 cents a share, from continuing operations in the fourth quarter of 2001.

For all of 2002, net earnings were $259 million, or 59 cents a share on sales of $5.1 billion. These results include the following nonrecurring items, and I will give them to you net of income taxes. First, a duty -- a duty reversal of $13 million, a gain of $293 million on the sale of (inaudible), and FX (ph) gain of $56 million, $25 million of which was in Q4, income tax adjustments of $64 million, $42 million of which was recorded in Q4, interest income of $7 million from settlement of tax assessment booked in Q4. Against these positive elements were a $7 million premium on debt repayment in Q3, and the asset write-off of $8 million for (inaudible) plant in Q4.

Now, these are not U.S. GAAP or Canadian GAAP measures, but excluding all of these elements, results per share would have been a loss of 9 cents in Q4 versus a loss of 12 cents in Q3, and a loss of 36 cents a share for the whole year.

Our EBITDA margins came in at 14.5% in Q4, and 16.5% for the full year, still ahead of the pack in North America. Compared to fourth quarter of 2001, we shipped 124,000 more tons of newsprint, or more than 11%, and 3,000 more tons of ZEP (ph) grades. Versus 2001 as a whole, we shipped 168,000 more tons of newsprint, while ZEP (ph) shipments were up marginally by 9,000 tons.

Newsprint prices trended up during the last few months of the year, and average mill nets (ph) across all tons in Q4 were up about $25 Canadian when compared to Q3, but down $155 per ton on average for the full year versus 2001. The major bright spots for 2002 were the August price increase and the fact that we lowered our manufacturing costs by about $5 per ton versus last year. And if you compare our interest costs from Q4 2001 to Q4 2002, they have been reduced by $15 million, or by $60 million on an annual basis.

Costs remain under tight control on the VAP (ph) side too, down by 2% on the year. The stable (ph) segment earned $31 million in operating income during that -- during the fourth quarter, with mill nets moving up an average of $18 versus the third quarter. Over the last 12 months, these grades have been the company's main profit driver, with $136 million in operating income, but still off by $181 million versus 2001 totals.

On the lumber side, the segment posted an operating loss of $14 million in the fourth quarter, but this being (ph) positive territory in 2002, earning $46 million. This is primarily due to the $32 million duty reversal booked in Q2, $18 million of which was accrued in 2001, and a weaker Canadian dollar.

We again took significant downtime in our lumber business in the fourth quarter, finishing the year having sold less than 80% of our annual capacity. This, combined with 44 million paid in duties, clearly shows how severely impacted this business was by the softwood lumber dispute. We were able to limit our SG&A to $46 million on the quarter, or only 3.5% of sales. That's $6 million more than last quarter, but the same level as Q4 2001.

On the year, we spent $169 million in SG&A, which is $3 million lower than 2001, and only 3.3% of 2002 revenues. Here again, we are the industry benchmark. Internationally, in 2002, Pan-Asia most certainly has been among the most profitable newsprint companies in the world. As a whole for the year, Pan-Asia generated EBITDA of U.S. $218 million on sales of $797 million U.S. in the markets with the highest growth potential. This compares to EBITDA of U.S. $250 million on sales of U.S. $811 million in 2001.

Now let's go to John, who will discuss the 2002 markets and the strategic highlights.

Thanks, Pierre. Despite the tough economy, we stayed focused on our priorities and continued to cut costs while reducing debt throughout the year. Although these results do not meet our expectations, there are some bright spots in the second half, both in terms of the pricing front and in terms of ad lineage growth.

Let's briefly review our markets segments. As Pierre said, lumber markets were soft for most of 2002, and the fourth quarter was no exception. Prices were down 3.6% on the year, despite U.S. housing starts posting at least 1.6 million units in every month of 2002, and there were more than 1.8 million units in December. Under normal circumstances, with interest rates expected to remain low, and an economic pickup expected in the next quarter or two, one could expect lumber markets to strengthen this year, and they could, if a solution to the softwood lumber dispute is found.

As expected, the value-added business was the consistent performer in 2002. Despite pricing pressure, demand for glossy grades surged 4.7%. This helped the introduction of the Lufkin machine into the market. In fact, the demand for all uncoated groundwood grades increased by 5.3%. Our own Equal Offset (ph) and Abby Cal (ph) sales jumped by 36% and 26% respectively.

We expect value-added papers to continue performing well in 2003, despite some supply imbalances in a few grades. And while the economic recovery is a major risk, it is smaller, given the recent jump in magazine advertising, the continued strong retail flyer volume, and the company's ability to market a full line of papers in these grades.

On the newsprint front, North American demand rose only slightly in the fourth quarter versus a year ago, while North American exports gained 15% in the same period. December versus December saw a very encouraging 4.6 pickup in demand. Our own sales volumes held up well through the quarter, up 11.4% versus Q4 of 2001. That's a big jump, especially when you consider that we took 192,000 tons of downtime, excluding Pan-Asia.

We expect operating rates to remain below normalized levels for at least the first quarter of this year, as newsprint markets continue to recover with improving economic conditions. While North -- while total North American inventories remain in very good shape, industry mill inventories are especially tight, at 314,000 tons. Combined Producer and Publisher inventories have come down by 82,000 tons from the end of Q3, and are down 42,000 tons compared to the end of 2001.

Our own North American inventories declined by nearly 70,000 tons on the year, to the lowest levels we have seen since the Donahue (ph) acquisition. The outlook for supply demand remains positive, and as a company, we are committed to matching our production levels with orders. We have reduced our capacity and continue to take market-related downtime, as evidenced by the 887,000 tons of newsprint downtime we took over the course of 2002.

Following the idling of the Sheldon mill and the Lufkin N.2 (ph) restart scheduled for March 1st, we are starting 2003 with 560,000 tons of idle capacity. This includes one machine at Portal Alfred (ph), which will also remain idled indefinitely.

Cap ex in the quarter came to $68 million. This is primarily the Bay Como TMP (ph) project, which is proceeding on budget and is expected to be completed ahead of schedule in February. At year-end, cap ex was $214 million for the full year, well below our $300 million target, with about 100 million going to asset maintenance and the rest to strategic projects like Bay Como (ph) and Thoreau (ph).

On the productivity front, we continue advancing towards our $100 million cost-savings goal, but we didn't quite get there before the end of the year. We realized 89 million in new savings from reduced material usage and improved productivity, despite the significant downtime.

Lastly, just last week, we informed our North American customers of a $50 U.S. price increase effective March 1st, 2003.

In 2003, we will focus on three priorities -- one, we will focus on cash. Beyond reducing debt, we will push cash management to every level of our operations, from Pierre's office to the operating and salespeople, increasing revenues, lowering our costs, and managing working capital.

Two, we will focus on productivity as a means of squeezing out the additional costs out of our already tight system. We will improve asset efficiency and complete the implementation of a new operating system begun in 2002. You'll hear more about this throughout the year. And three, we will focus on world-class customer service by continuing to enhance the value proposition we offer our customers by going above and beyond their expectations for quality and service.

Now let's take questions - Lorne.

Thanks, John. Just before taking questions, a reminder that the call will be replayed starting an hour after we finish, and lasting until February 3rd. The replay number is 416-695-5800, and the pass code is 1000259. The slide presentation referred to today as well as a recording of this call will both be archived under the investor relations section of our Web site.

Let's start with the investment community and conclude with the business media, who we'd ask to limit questions to today's topics. For other inquiries or questions, Marc Osborne, our Manager of Corporate Communications and Media Relations, will be available after the call at 514-394-2340. Investment community questions may be directed to me at 514-394-2360.

Operator, if we could poll for some questions from the investment community, please.

Thank you. We will now take questions from the telephone lines. If you have a question, please press 1 on your telephone keypad. If you are using a speakerphone, please lift the handset and then press 1. If at any time you wish to cancel your question, please press the pound sign. Please press 1 at this time if you have a question.

There will be a brief pause while the participants register for their questions.

Thank you for your patience. The first question is from Bill Hofmann (ph) of UBS Warburg. Please go ahead.

Yeah. Good morning. I wonder, John, if you could talk a little bit about the European market with regards to what your price expectations are for '03, and also if you can sort of characterize that within the context of the average increase you achieved in the fourth quarter of $25 Canadian, how much that was offset by European sales.

First, for the outlook of 2003, presently the negotiations are almost final in Europe but I suppose not a hundred percent. U.K. firmed up early by the continent is still in negotiation. And so we see that the euro price on the continent is bouncing between 490 and 475, I guess. On the upside for us, of course, is the strengthening euro/dollar up from, say, the mid-90-cent level to 108 U.S. dollars yesterday, I think. So we have a combination of pricing going down somewhat, but exchange in our favor, which means that on the whole, we're going to be about the same or perhaps a little bit better in terms of pricing in Europe next year.

In the fourth quarter, when you look at quarter over quarter improvement in pricing, I think you have to first of all remember that the U.S. price was really in for August, September, October, and then went down in November, and so the pricing comparison is almost, you know, flat or slightly up for us. I think $10 U.S., $25 Canadian, $12 U.S., I guess, or so. As far as the European shipments, our European and international shipments were strong in the third -- fourth quarter relative to the third, but I don't know that they significantly impacted the average pricing. No real impact on average pricing gained quarter over quarter.

Okay. And then my next question just has to do with the energy costs, whether you expect to see any kind of meaningful improvement here in the first quarter or whether you already are experiencing those in the fourth.

Well, most of the price increase -- the cost increases that we saw quarter over quarter actually came from energy. Both higher energy pricing and higher consumption of energy, primarily due to the cold weather, especially here in Canada. It's been -- it's snowing today, so ... Anyway, it's been a little nippy, and so the combination of that made about two-thirds of our total cost was due to energy. In the first quarter, we're not expecting much change in energy costs from first to fourth quarter. I guess some of the uncertainties of Iraq could impact that, but we don't have a forecast on that. But we're budgeting for about the same energy levels.

And then finally, just your thoughts for downtime in the first quarter besides the permanently idled -- or the idled capacity?

Well, we took 192,000 tons of downtime in the fourth quarter, and we expect to take around that in the first quarter. Because of the focused downtime effort, though, we will see our costs go down slightly, due to the -- the idling of Sheldon and -- well, the restart of Lufkin. There will be some -- of course some -- there is the severance cost -- some costs for Sheldon. They were primarily in the fourth quarter, but some in the first.

Okay. Great. Thank you.

Thank you, Mr. Hofmann. The next question is from Chip Dillon of Salomon Smith Barney. Please go ahead, sir.

Yes. Thank you. You mentioned, John, that the price, you know, in Europe seems to be bouncing around 470 to 490 in euro terms. Could you tell us how that relates to where prices were, say, either in the fourth quarter or for, I guess, the whole year over there in 2002?

It's a little bit variable, but I think the prices were around 500 euros or maybe a little higher than that. 520. Let me -- does anybody know exactly?

530, yeah.

Five what?

530.

About 530 for the year on average.

So it looks like that when the dust settles, we might see anywhere from a -- like a 8 to 10% drop this year with contracts versus '02. Is that kind of ballpark fair?

Yeah. The prices will go down by about 10%.

Okay.

But exchange is in our favor.

Oh, yeah. It offsets a lot of it.

Now, on a second note, you know, with the Sheldon idling, how permanent should we view that mill going down, and is it really a function of the market and, in other words, if, you know, the market explodes in the next eight months, I guess you could restart it, but if it's down for, say, a year or two, or is there some point at which you kind of -- it becomes very difficult to restart because, you know, the workers get other jobs and you do other -- and then the mill kind of, you know, stops being in operating condition?

Well, I think the -- many of the workers will have to find other employment. You know, the -- they don't really have the kind of safety net appropriate for staying around the mill very long. I would say that, you know, we need pricing levels of 550, and people who want the volume, for us to consider starting up the Sheldon mill. And certainly if we see volume growth and prices around 550, we'll look to restart the mill. That's the -- that's the -- sort of the way we look at it. And so, you know, we -- we really are planning for the mill to be idled for certainly until toward the end of the year. Or if not, for the full year.

Okay. But if you don't get to that level in the next year and a half or two, heaven forbid, at that -- at some point two years from now, would it be very difficult to restart the mill, or could you still go out and try to hire a new workforce and do it two years from now?

Well, I think certainly we can -- we can bring the workforce back, if needed, and we can start -- restart the machine. We have -- we have idled the mill in such a way that it's restartable, including making sure we maintain environmental permits and all the permits we need to restart the mill. You know, two years from now, we may have a different view of that, but that's our current view is that we may restart it someday.

Okay.

If the volume and price is there.

Okay. Well, thank you.

Thank you, Mr. Dillon. The next question is from Mark Connelly of Credit Suisse First Boston. Please go ahead.

Thank you. Just a couple of things. John, when you think about inventories ...

Hey, Mark. Sorry to interrupt you. Can I get you to speak up just a little bit?

Let me try a different phone.

Can you hear me better now?

Yes.

When you think about inventory levels, you know, certainly these numbers are low by historical standards but they didn't really help very much in implementing the fourth-quarter price hike which, you know, says to me that maybe they're still too high. Have you folks thought about that? I mean, certainly in terms of days supply, inventories don't look particularly low and we know that can swing around, but producers inventories are not exceptionally low. Doesn't that mean that maybe the folks at the mills need to do even more and start to -- to get to the point where we see some pain? Nobody is telling us they can't get newsprint out there.

I think there's -- you know, inventories are historically low, but the inventories vary by customer, of course. I think, you know, when you take out the current idled capacity, both by Abitibi and other people who have announced conversions and closures, you know, you can get an operating rate that's in the 92 to 93% range today, and so the -- the question is, perhaps not so much inventory as I -- I think it is we just need a little bit of a pickup in demand. You know, as far as the price implementation, I think we feel like demand is going to slowly recover. We see that operating rates, given the idled capacity, are better than people think, and we believe that we need an increase in the price of newsprint today in order to sustain our base.

Is it fair to assume that we have seen, in your transaction prices, pretty much all we're going to see from the fourth quarter?

I don't understand the question.

From the price hike that you got, I mean, we saw list prices up $35. You've showed us a realization up Canadian 25. Should we have any expectation of seeing any more of that prior to this new price hike?

I think, first of all, on the Canadian 25, you have to remember that there was some of the price increase was in the third quarter and then some in the fourth.

Right.

But in reality, we had for the months of September and October and first half of November two pricing levels in newsprint. Half of the producers had the -- were up 50 dollars and the rest of the market was up around 35, and so that was not sustainable, and so we went back to up 35, so that -- you're not going to see any additional flow-through from the fourth quarter increase.

Okay. One last question. On the pulp asset, assuming market conditions in -- in the -- in the security itself remain reasonably good, should we expect to see you sell the rest of your position in that pulp facility?

Well, when we did the -- the (inaudible) transaction, we mentioned that we were not going to be long-term holders of the remaining 25%.

Right.

So certainly, over time, we will -- we will assess the market situation, and it's something that we will be looking at doing. You know, over time. But when, exactly, that will really depend on the market.

Okay. Thanks very much.

Thank you, Mr. Connelly. The next question is from Mark Wilde of Deutsche Bank. Please go ahead, sir.

Good morning, John, Pierre, Lorne.

Hi.

Good morning.

I wondered, the Canadian dollar has been showing a little sign of life here, and I just wondered if Pierre could update us on what your hedging strategy is vis-a-vis Canadian dollar/U.S. dollar.

Yes. Well, the hedging strategy, we have -- we tend to look at it -- you know, we look at our (inaudible) dollar cost basically, okay? And so we try to hedge part of that because we do sell in U.S. dollars whenever we sell paper. So we look at hedging part of that. So, you know, we don't -- we adopt -- we obviously don't hedge the whole thing, and the way we do it is with -- is with zero-cost options.

Tunnels.

Tunnels. So we basically take a short and long position on the dollar, so, you know, like today, we could go out and (inaudible) between a buck 50 to a buck 56. Okay. Between that tunnel.

Okay.

And that's less than -- we always hedge less than 50% of our exposure, so it's not a significant program.

Okay. And if I'm remembering back, John, about four or five years ago, seems like that the hedging was only about 12 months in duration. Is that still true?

Yes, it is. It's up to 18 months, but beyond one year it's only between 0 to 25%. So it's very, very small.

Okay.

And again, it's not on the sales, but on the Canadian dollar cost, so it's -- the total size of the hedging program is not that big.

Okay.

Okay? But what we've done this year, we're very happy about having done it, because, you know, as you said, the dollar sits at about a buck 53, a buck 52 right now, and we did a lot of, you know, our hedging between a buck 56 and a buck 61.

Okay. The second question, you talked about Europe but can you give us a sense of kind of what's going on with newsprint in Latin America and in Asia, in terms of pricing and demand right now?

First, in Latin America, it tends to follow the U.S., but it does follow by some months off on a quarter but usually by a month or two. We -- I think -- you know, there's a lot of uncertainty in various countries in South America, Argentina and Venezuela are the two most prevalent. But the big drivers in South America are, you know, Mexico and Brazil, and we see some recovery in demand in Brazil. Currency is stabilizing and things are going better than we think.

And we don't expect a lot of demand or pricing recovery this year, but we think it will continue at least as good, if not better than, 2002. In Asia, we're seeing a pickup in demand in Asia of -- of newsprint, especially in those countries where Pan-Asia is primarily focused, China and Korea, so that's a big plus for us, and not a lot of pricing improvement to date, but you can still find some low spot prices but things have begun to turn around in Asia and there's a slight upswing.

Okay. All right. And within (inaudible), John, have you guys taken, with the Malaysia newsprint mill that Fletcher challenge had and then nor ski picked up, have you put that within (inaudible) yet?

We have the - Pan-Asia has an option to acquire the M&I mill over time. It's not any real timeline on it. We're -- you know, it just depends on the right -- Norski's (ph) share, to acquire Norski's share into Pan-Asia.

Okay. All right. Final question I had is, in the event that this Sheldon shutdown becomes permanent, can you give us a -- any sense of what kind of a hit that is to book value? What you carry that at?

At this point, I don't think we want to talk about that, because we don't -- we don't see it that way at this point.

Okay. Thanks, Pierre.

It's just a 12-month idling.

Thank you, Mr. Wilde. The next question is from Don Roberts of CIBC World Markets. Please go ahead, sir.

Thanks. Some of the questions have been answered, but John, just a little -- focus a little more on the Pan-Asia again. With the Chinese putting this sunset review on their antidumping duties, it seems that Pan-Asia is an interesting spot here. Since you've got that Shanghai mill as well. Could you give us a sense on maybe -- maybe net-net, is this a meaningful event that we could see here potentially, assuming it is revealed and is it net positive or negative for you?

Well, it might be too early to tell on that one, but I think that, you know, the -- just to talk strategically, we see China as our -- as a growth market in Asia, and the main growth markets for Pan-Asia, and certainly it seems, I think, one of the big drivers you must remember is that people's daily is the big newspaper and sort of drives consumption in China, and a number of pages seems to vary accordingly. And so I think that we'll see an orderly growth of capacity, manufacturing capacity, in China, and the Chinese are generally reluctant to use hard currency to buy newsprint, so I don't know if you're implying will we see a return to the days of high imports into China. I'm not certain that that will be -- that's a reality. I do think that in time, Pan-Asia will expand in China.

I think one of your other competitors thought that, you know, perhaps a thing behind this sunset review is the Chinese are positioning themselves with their own new capacity to perhaps use as an export platform. I mean, from what you see in that market, do you think there's any threat of that occurring, like we saw in Korea?

China is an awful big market. I don't -- we -- most people see China as the main consuming engine in the area, so I don't really see them take a lot of capacity. They may from time to time export, but I don't see that as the main strategic issue in China. You must remember, you know, all the fiber has to be essentially -- the majority of the fiber has to be imported.

Yes. Just switching gears here over onto the solid wood side, any other sort of developments we may see in terms of permanent closures on the lumber situation in Eastern Canada or are you just waiting to see what kind of visibility is on this -- on the dispute?

Well, I think there will definitely be permanent closures in Eastern Canada from the industry but on the Abitibi side, we currently have one mill idle but we're planning to restart it at the end of the first quarter, and we're looking at some possible other conversions. But I think on the whole, we feel that we have a very low cost base and once the softwood lumber issue is sorted out and competition competes on a level field, we should find ourselves in a favorable position.

Okay. Thank you.

Thank you, Mr. Roberts. The next question is from Jarrod Mirra (ph) of Prudential Securities. Please go ahead.

Good morning. I have a couple of questions. I was just wondering if you could give us a sense of how your customers are reacting to the price hike announcement for March 1, and whether you're seeing any sort of buying ahead of that.

Well, I think our customers certainly understand our position. We have -- after we explain it. And do they readily agree to take on higher-priced product? I think we'll always have a debate with them on that over time. But I do think they certainly -- if they were on our side of the business, they would see it the same way. They have -- we've seen some very good profitability numbers from most of our customers in the fourth quarter, so they've had -- you know, which is proof of the growth in ad lineage and revenues on their sign of the business, so I think that we'll have the normal debate over price, as time goes on, but I believe we will implement the price increase.

Can you give us any guidance of where you would see first quarter pricing versus fourth quarter? Would it be relatively flat with the increase coming, you know, maybe more towards the second ...

Oh, the increase coming really in March. You know, it's -- there's not -- we don't expect much gain in pricing in the first quarter.

And if you were to get the full $50 just for example, and let's say you got for all the second quarter, can you give us a sense of how that would change your total realizations? Basically, what percentage of your shipments are affected by this price hike?

Yeah, we talked about it last time. It's about 55% to 60%.

Okay. So 55% to 60% are covered by this price hike and the rest are in Europe or Asia?

Well, it depends on the quarter, it depends on the actual export level and so on, but it could be 55%, it could be 60%, depending on the export levels that we have in any given quarter.

Great. Thank you.

Thank you, Mr. Mirra. The next question is from Akiva Cohen (ph) of Morgan Stanley. Please go ahead, sir.

I was wondering if you could give us the amounts outstanding under your accounts receivable securitization facility, because in the quarter we actually saw a pretty substantial decrease in the accounts receivable carried on the balance sheet and was wondering whether you could give some insight into that.

No, there was -- there was maybe about $30 million decrease from -- due from the securitization program, so the program went up by $30 million quarter over quarter, so part of the receivable decrease is normal year-end stuff. We -- actually last year, we had similar pattern. (inaudible) our receivables compared to last year, I believe that they are higher right now than they were at the end of the year last year.

Okay. And what's the current ballot facility?

About 470. Canadian (ph).

Okay. Thank you.

Thank you, Mr. Cohen. The next question is from Gene Folem (ph) of Salomon Smith Barney. Please go ahead, sir.

Good morning, and thank you. Gentlemen, could you just spend a little bit of time talking about managing your working capital going forward in '03, and expectations on how you expect to take out more cash out of the working capital side of the equation?

Well, we've done a detailed -- are beginning to do a detailed analysis of where our working capital lies, and of course, you know, you tend to mostly think of it in finished goods, but we also have quite a bit of working capital in terms of lumber and materials in terms of, you know, all the way from spare parts to other materials we have at our mills and sawmills. So one of the biggest focuses we will bring is on that materials segment, and also maybe a -- control the flow of our rough or unsawed lumber going forward. So we're seeing ranges of 20 -- you know, 25 to -- over -- to a hundred million on the very best side, in terms of working capital improvement.

Okay. That's good. In terms of just cost savings, you've -- you said you've achieved 80 million -- 89 million of the targeted 100 million. Is it possible that that targeted 100 million will have to increase in '03 if expectations of economic recovery do not pan out? And what might that higher-end target be?

Well, I think that, you know, improvement of costs, especially in terms of usage and productivity, is a never-ending thing in Abitibi-Consolidated, and so we'll continue to focus, and part of our new Abitibi operating system that we're implementing is to bring focus on that all the way to the floor. And so we expect to see additional improvements. We haven't put an absolute target on that, but I'm sure you'll see our costs improve over time.

Okay. John, one final question. Could you update us on the current status of your bank revolver and covenant compliance, please?

Yeah. We're in compliance with our bank revolver facility.

And what is ...

We don't foresee any problems with our covenants.

And what is the current availability?

680 to 690.

Okay. Okay. Thank you very much.

Thank you, Mr. Folem. The next question is from Frederic Beausoleil of RBC Capital Markets. Please go ahead, sir.

Good morning. Just a quick question, actually, on fiber. I was wondering if you guys had seen the impact of the fiber shortage situation in the U.S. south in any way, and the second question: With regard to the tonnage that you sent to Europe, could you indicate what is the basis weight and how, on -- on average, and how it is different from what you would sell in North America?

The -- on the timber situation in the U.S. South, primarily driven by the wet winter, we haven't really seen an impact, either on availability or the price of wood in the south. One of the positive -- we do see a declining wastepaper price starting in the first quarter. Hopefully that trend will continue. And you have to remember that in our U.S., the mills are all from a hundred percent to 40% recycle.

And then on basis (ph) weights to Europe, generally vary from 42 to 45-gram, and almost always below -- 45 is on the high end, and in the U.S. it's 48-gram to 45-gram, primarily 48-gram, and so I don't know -- that's the answer. I don't know what other information would you like on that.

No. Just the prices you quoted for Europe earlier in the call were for the 45-gram benchmark, were they not?

Yeah, that's correct.

Okay. Thank you very much.

Thank you, Mr. Beausoleil. The next question is from Rick Skidmore of Goldman Sachs. Please go ahead, sir.

My questions have been answered. Thanks.

Thank you, Mr. Skidmore.

Thank you.

The next question is from Steve Chercover of DA Davidson. Please go ahead, sir.

Good morning. A number of my questions have been answered, but John, you mentioned that Sheldon would be viable with 550 newsprint. Does that in any way indicate what you think the long-term average price from newsprint will be going forward?

I think in general, you know, everybody has their own normalized cost curves of the ongoing price of newsprint, and I think they tend to -- most people say the normalized price of newsprint is higher than 550, somewhere in the range of 570 to 590, depending on how you do the calculation.

Yeah. I would agree that historically, that's been the case, but, you know, should we perhaps ignore, you know, the '80s and '70s and just concentrated on the last few years? Would 550 be a more realistic price, on average, going forward?

In reality, if you use only the '90s, you end up with a higher price, so -- thanks to 1995/'96. But -- I hate to ignore history, but I think, you know, the average price may be declining but I don't believe that the future average price is in the 550 range.

Thank you.

I think it's better than that, still.

Hope so. Thanks.

Thank you, sir. The next question is from Frank Dunale (ph) of Adaz Capital (ph). Please go ahead, sir.

Yes. I got a few questions. The interest revenue of 11 million from the litigation. Which income line of the income statement does that run through?

That was against financial expenses.

Okay. And the lumber duties, are -- when you look at -- when we look at the segment earnings, is the lumber duties included in the lumber segment, or is that someplace else?

No, they are in the segment. They basically reduce mill nets.

Okay. And the FX and the tax thing, that didn't run through any segment stuff, did it?

No.

Okay. Great. Thanks.

Thank you, sir. The next question is from Kelly Woodall (ph) of UBS Warburg. Please go ahead.

Hi. It's Richard Kelertas. You mentioned, John, wastepaper prices. O&P prices dropped about 20% in the fourth quarter, or close to that quarter over quarter. You didn't see any flow-through in the fourth quarter, and your expectation then is that you'll probably see a lot of that in the first quarter?

I don't -- well, I don't believe I mentioned that wastepaper prices dropped in the fourth quarter. Wastepaper prices were fairly steady in the fourth -- from third to fourth quarter were relatively study. What we have seen, though, in this quarter, the first quarter, a beginning of a decline in wastepaper prices. So January, prices will be down slightly. And then we hopefully will -- that will -- we'll see it decline some more. So we'll see some decline in wastepaper prices in the first quarter. That will be offset somewhat by an increase in wood chip prices in Canada.

And could you talk about Port Alfred (ph) now that it's back in your stable? Any plans to reconfigure that mill or any idea of what possibilities you might have there, in terms of its future? As it is, obviously, it didn't really work as a four-machine mill with the wood room and everything that it's got there, and all the pulping facilities. Any ideas or any thoughts of what you could do with that operation to make it more profitable?

We have -- we've put together, you know, early this year, or late last year, just before the holidays, a group of mill people and some of our corporate development people to begin to look at the possibilities and options for that mill going forward, and -- because we do make a -- some (inaudible) there and some newsprint and we're examining what the right alternatives for the operation are, and we should have a better decision on that toward the end of the quarter or at the end of the quarter.

And could you give some added background on the groundwood specialty markets? Which grades in the -- or you see, anyway, the next couple quarters doing better than others outside of your alternate offset and equal offset which are doing fantastically? But within your stable of uncoated grades, where do you see still some signs of weakness? Where do you see very solid signs of improvement?

I think in general, you can say on the uncoated groundwood grades, the best growth is in the high end, so the -- things like alternative offset, the super calendar, SCA, SCB grades are growing the best. Directory is more or less stable in terms of growth, slight growth, but pretty stable. And then you have -- the big switching happens in the soft nip type grades at the bottom of the groundwood cycle and what you might call the 65 to 70 brights. So that's why our strategy is to really focus on those high-end grades.

The alternative and equal offset grades and the Abby Cal or (inaudible) grades are where we see the big growth.

And finally, there's some talk that Kmart is going to get back into the catalogue printing business, once they emerge out of bankruptcy protection. What's your thoughts on that? They used to be a big customer of yours. Do you expect them to be back in the market? Have they given you any indications, and what grades do you think they may be looking at in terms of growth going forward?

I don't have any insights into that other than I -- it would be nice to see -- if they want to use paper, we'll be glad to provide some.

Okay. Thanks.

Thank you, sir. The next question is from Sean Steuart of TD Newcrest. Please go ahead, sir.

My questions have been answered.

Thank you, Mr. Steuart.

Operator, we'll have time for one more question from the investment community and then we'll switch over to business media.

Thank you, sir. The next question is from Kate Jacque (ph) of Seneca Capital. Please go ahead.

Hi. Good morning. I joined the call late. But can you go over your realized price for newsprint and lumber, and also the tons for the quarter and for the year?

The price -- yeah, you can calculate the price from our mill nets from our segmented results for newsprint and lumber grades. The best -- well, you can see that we saw a $25, $26 increase in newsprint prices quarter over quarter and you have to remember there that part of the U.S. price increase was implemented in the third quarter and part in the fourth quarter, and also you have to keep in mind that around 55 to 60% of our product is sold in the U.S. Lumber has generally declined in price, and in fact, the fourth-quarter pricing in early December, I think, hit an all-time decade low, and so lumber prices are down quarter over quarter.

How about your product shipments in tons for newsprint, groundwood, and pulp, and then lumber, for the quarter?

The production tons are in the segmented results.

Yeah. The shipments were up slightly quarter over quarter in the newsprint, basically about 20,000 tons, and lumber shipments were up -- sorry, were down quarter over quarter by about 10,000 -- 10 million board feet, and VAP grades were slightly down about 6,000 tons quarter over quarter.

Thank you.

Thank you.

Operator, let's take some questions from business media now.

Thank you. We will now take questions from the media community. If you have a question at this time, please press 1 on your telephone keypad.

Mr. Monger, your line is now open. Please go ahead, sir.

(Speaking in foreign language)

The question, John, was to what extent do we feel Canada is doing well or enough in the lumber dispute?

Well ...

The government, the government.

I think, you know, the big -- the best thing for government to do is to support the communities in whatever way they can and to also encourage a restart of negotiations in -- with the U.S., and on the positive front, there are some meetings in Washington later this week that should help to restart the negotiations. We're all hopeful of that, anyway.

(Speaking in foreign language)

Do you think that Canada should sell its timber through auction systems?

I think that, you know, that that's sort of a Canadian right to determine how they want to market lumber, and by province. There are some regions we must keep in mind that there is quite a bit of private land already in Canada, and some of the provinces, such as BC, for example, have indicated they might consider auctions, and in Quebec, we have, you know, 15% private land where we already have basically an auction of lumber, so I think what's -- what we need to do is convince the U.S. that we do, in fact, have a free market system here in Canada and provide the understanding for them so they can agree with that assessment.

(Speaking in foreign language)

Are we afraid, John, that the provinces might be divided on this front? BC, more or less?

I think that Abitibi stands for a pan-Canadian solution, and I think it's important for the provinces to stay aligned and not become divided and try to negotiate in that way, too, with the U.S., and I'm sure at the end of the day, we will find a pan-Canadian solution.

(Speaking in foreign language)

What about the risk of more closures in our lumber assets?

Well, inside of Abitibi-Consolidated, you know, we feel like we have a very competitive cost base, and we believe that we have an advantage and will continue to operate most of our assets. There's always a risk if the situation becomes worse than it is today, but we don't foresee any future -- any additional closures.

(Speaking in foreign language)

Thank you, sir. The next question will come from Charles Glammo (ph) of Reuters. Please go ahead, sir.

Yes. I just want to make sure I understand correctly. Your clean EPS number is a loss of 9 cents, excluding all the charges, right?

Yeah.

Okay. Why did you put out that figure in your results? It could have been much easier.

No. It's because Canadian GAAP and U.S. GAAP rules, like I said before when we mentioned that number, it is not a U.S. GAAP or Canadian GAAP recognized figure, okay. Because GAAP imposes many rules on companies, so that is why we verbally stated it, and before starting these numbers, we did say that they were not U.S. GAAP or Canadian GAAP.

But anyway, I mean ...

We will look at the possibility of doing that next quarter.

Okay.

Definitely.

And your lumber duties paid in the fourth quarter were 19 million, if I'm correct.

Yes, that's it.

Okay. Thanks.

Thank you, sir. The final question from the media community is from Robert Gibbons (ph) of the "National Post." Please go ahead.

Looking a little bit ahead, would you consider selling your lumber interests?

We -- I guess the quick answer is that we don't -- are not currently considering selling our lumber interests. We believe that our integrated tree to mill network inside -- especially in (inaudible) and Ontario provides us with some competitive advantage. We continue to look at the possibilities of joint ventures such as the one we recently agreed to for high truss joints with Louisiana Pacific, and we will look at other kinds of joint ventures over time.

Thanks.

Thank you, Mr. Gibbons. And at this time, Mr. Gorber, there are no further questions registered. I would like to turn the meeting back over to you, sir. Please go ahead.

Thank you, operator. Thank you, everybody, for joining us today, and we'll see you all back here on April 23rd.