Resolute Forest Products Inc (RFP) 2012 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Resolute Forest Products fourth quarter 2012 earnings call. I would now like to turn the meeting over to Mr. Remi Lalonde, Vice President for Investor Relations. Please go ahead.

Thank you, Wayne. Welcome to Resolute's fourth quarter earnings call. My name is Remi Lalonde, Vice President for Investor Relations. I'm joined by 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 we'll be using for today's presentation by logging on to the webcast, using the link in the Presentations and Webcasts page under the Investor Relations section of our website. The slides are also available for download.

Before we begin, I direct your attention to the note on forward-looking statements in this morning's press release, and the slides accompanying this presentation. We will discuss forward-looking matters today. Due to uncertainties inherent in these statements, actual results may differ. Our statements are not guarantees of future performance.

You can find additional financial and statistical information, including a reconciliation of non-GAAP financial measures in the press release and the slides. We will take questions from analysts and investors following our prepared remarks. We ask that media and others please direct their questions to our Communications Department following today's call.

Richard?

Good morning, and thank you for joining us today. 2012 marked our second full year as a restructured company. It was a year in which we responded aggressively to market challenges. We significantly improved the Company's competitiveness by optimizing the asset base and strengthening our financial position.

Before we review the details of our financial performance, I want to highlight some of the many changes we have accomplished this year. We grew the pulp segment by adding the three Fibrek mills, one northern bleached softwood kraft and the two recycle mills, representing about 750,000 tonnes of capacity. This positions us well as a long-term player in pulp, since we're now the fourth largest pulp producer in North America.

We announced a number of projects that will help us grow our wood product business, capacity enhancement in Thunder Bay, Comtois, Senneterre, Saint-Thomas, La Dore, and Girardville, in addition to the announced restart of the Ignace sawmills, and construction of a new Atikokan sawmill. When all are completed by mid-2014, these projects will represent 400 million board feet of additional annual production capacity. These projects will help to offset the 150 million board feet of capacity lost as a result of the Oakhill closure with the sales of Mersey assets.

We also invested in power generation. We added 9.5 megawatts of capacity at Saint-Felicien and 20 megawatts at Dolbeau, which were fully operational in December. 65 megawatts of new capacity at Thunder Bay is now only weeks away from production.

We will use these facilities to sell power to the grid, in addition to the facilities we use only for internal consumption -- Calhoun, Catawba, Coosa Pines, Hydro Saguenay, and Fort Frances -- and it gives us an important cost advantage.

We've made significant progress toward optimizing our paper asset base this year, while preserving our ability to generate cash flow. These steps provide for a leaner and more efficient mill network.

Here are a few examples. As part of our efforts to manage exposure to export markets where the relative trend of the US dollar has created difficult conditions for North American producers, we idled and subsequently sold our Mersey newsprint mill.

We restored a high-gloss paper machine in Dolbeau. This machine is of superior quality and the machine was built in 1999. Together with power generation, we're confident that Dolbeau will be an integrated, state-of-the-art operation, but given the [un-mitigatable] drop in demand for specialty papers, and our strategy to focus production on our most productive facilities and machines, we closed a higher-cost machine in Laurentide, in addition to the Kenogami machine closed in late 2011.

We idled a coated paper machine in Catawba to improve overall efficiency and reduce the labor and other manufacturing costs.

We independently idled the bulk mill, as well as the high bright and book paper machine in Fort Frances, and, in order to drive better efficiency and lower overall labor costs, we implemented more efficient manning structure at a number of sites.

In the fourth quarter, we announced the elimination of 112 positions in Alma, 75 in Clermont, and 40 in Thorold. We've also begun discussion at the Saint-Felicien kraft mill to optimize manning and costs.

At the corporate level we completed the transfer of the remaining corporate functions from South Carolina to our Montreal head office, and we also absorbed Fibrek and saved $11 million. It is efforts like this that help maintain our low-cost SGA to sales ratios.

On sustainability, we continue to advance on our key efforts in the areas of responsible fiber sourcing, carbon footprint reduction, environmental compliance, product stewardship and sustainability disclosure.

We became the world's largest manager of FSC-certified forests in 2012, with 65% of Company-managed forests certified to FSC standards.

Finally, we returned $67 million to our shareholders through share buybacks. We reduced, also, working capital on the balance sheet by a further $81 million from the year end of 2011, and we redeemed an additional $85 million of debt.

Compared to the third quarter, we generated adjusted EBITDA in the fourth quarter of $36 million in newsprint, down $8 million; $12 million in coated, unchanged; $19 million in specialty, down $18 million; and $22 million in wood products, it's up $8 million; and $13 million in pulp, up $22 million.

Our adjusted EBITDA for the full year 2012 was $386 million, with $104 million in the fourth quarter. Adjusted EBITDA increased in newsprint by $7 million, in specialty paper by $11 million, and in wood products by $52 million, but we suffered from the weak pulp market, where profitability in that segment dropped $121 million, as we rode through the trough in the cycle all year. Adjusted EBITDA was also $46 million lower in coated.

$173 million drop in volume, mainly in paper, was the biggest negative to the $95 million in adjusted EBITDA in 2012, but over half of the lost volume stems from the efforts I just described, our conscious decision to manage production and inventory levels, and to focus production on our most productive facilities and machines, at the same time driving for better efficiency by restructuring and reducing labor costs.

For example, we responded to weakness in export markets, pressure by the strong US dollars, by adjusting our capacity, instead of building inventory, and we idled a coated machine in Catawba to improve efficiency, reduce labor costs, and, as a result, eventually generate more profit.

As we continue with our strategy of profitable retreat from certain paper grades, our philosophy remains the same. We run for profit, not for tonnes. We do that by managing production and inventory levels, selling only profitable tonnes, and maintaining world-class operational standards.

I would like to note that even though we shipped 10% fewer tonnes in newsprint and 16% in specialty papers, we increased the adjusted EBITDA generated in those segments by 4% and 10%, respectively, thanks, in large part, to our cost focus strategy.

The addition of Fibrek to the Resolute family negatively affected our result by $3 million of adjusted EBITDA, despite a $10 million positive contribution for the US recycle mills. I will add that we are optimistic about the pulp segment's future, and we expect stronger results as we start to benefit from external power sales in Saint-Felicien, as well as other cost reduction initiatives there.

We can now put behind us the extensive catch-up maintenance and environmental work that was required at the mill, including the dredging of many years of accumulated sludge in the lagoons, as well as costly repairs to the electrostatic precipitator.

Total North American newsprint demand declined just 1.2% in 2012, reflecting a 20% increase in demand from other users, mainly commercial printers, and a 6% decline in demand from newspapers. Accordingly, the average operating rate remained elevated in 2012, at 92%. Global demand for newsprint was down 3% in 2012, including an 11% decline in Western Europe, 9% in India, and 5% in Latin America.

We can see the impact of the stronger US dollar on world newsprint markets, as North American exports to Western Europe were down 30%, to Asia down 33%, and Latin America down 6%.

After a few years of stability, the price of newsprint in North America has started to come under pressure, mainly as a result of a competitor's restart of the Stadacona mill in Quebec City, and lower North American exports.

North American demand for coated mechanical paper was down 2.3% in 2012. There was a 4% reduction in shipments within North America, and an increase in imports. The shipment-to-capacity ratio average was 94% in all of 2012, in part as a result of the idling of one of our machines, and other industry closures. The price improvement in North America is fragile and is under pressure because of demand softness and switching to mechanical high-gloss grades.

We are in the process of applying the same principle at the Catawba facility that we used to generate more profit on fewer tonnes in newsprint and specialty paper, but it is a long process, and the equipment failures that we experienced in the fourth quarter are at least partly related to the extensive restructuring that resulted in significantly reduced manning, 154 positions, to be exact.

We're in the process of retraining the remaining staff for the additional responsibilities. It is taking longer than we would have liked, but we expect results to start showing in the coming quarters.

Total North American for uncoated mechanical paper declined 16% in 2012, including a 20% drop in high gloss grades, 18% in lightweight, and 11% in higher brightness grades. While the shipment-to-the-capacity ratio averaged 92% in the year, it dropped down to 83% in December as a result of significant capacity addition with the restart of our large machine in Port Hawkesbury, Nova Scotia.

With the closure of higher-cost machines and the restart of Dolbeau, we will be more competitive in this challenging market. As I mentioned earlier, once fully ramped up, the integrated Dolbeau mill will have a low-cost position. The cogen plant runs on wood waste from our adjacent sawmill, and, in addition to its external sales of power to the grid, it will also supply low-cost steam to the paper machine.

Overall, chemical market pulp demand rose 2.4% in 2012, driven by a 7% increase in Chinese demand. Demand in North America and Western Europe improved in the fourth quarter, resulting in declines for the year of only 0.8% and 1%, respectively.

Global demand for softwood pulp, which represents about 80% of our virgin fiber capacity, was up 2.4% for 2012, also a result of stronger demand in the fourth quarter.

Demand for northern and southern hardwood pulp was also up by 2.2%.

We remain optimistic with the long-term outlook for pulp, particularly as the world economy slowly improves, and there is reason for cautious optimism that the pulp market is gradually reviving.

Actual housing starts in 2012 were 780,000, 28% higher than in 2011. Wood products should continue to show progress as housing starts gain momentum.

Our ongoing growth projects, the capacity enhancement in Thunder Bay, in addition to the renounced restart of the Ignace sawmills and the construction of the Atikokan sawmills, to be completed in 2014, further enhance our position in the lumber segment for the future.

Before I turn the call over to Jo-Ann, I want to stress that we've made significant progress this year, despite challenging conditions and markets. Our assets are more competitive. Our costs are lower and our financial position is stronger.

Our cost focus and asset optimization strategies remain front and center, but based on the changes we have already made, we don't currently expect to reduce our paper capacity to the same extent we have in the last two years, at least not in the year ahead.

In fact, we plan to reopen the Gatineau facility in early May, at which point we will rearrange our network of mills to ensure that production continues to be [patterned] with our customer orders.

Jo-Ann?

Thank you, Richard, and good morning, everyone.

Today we reported a net loss of $36 million or $0.38 per share in the fourth quarter on sales of $1.1 billion. Excluding $70 million of special items, we generated net income of $34 million or $0.35 per share.

For the year ended December 31st, 2012, we incurred a net loss of $2 million or $0.02 per share on sales of $4.5 billion. Net income was $79 million or $0.81 per share, excluding special items of $81 million.

The special items are described in this morning's press release, but I'd like to highlight the more significant ones.

In the fourth quarter, net of tax, special items included a $50 million charge related to asset impairment and closure costs, mainly for the capacity reductions at Fort Frances and Laurentide, as well as the sale of Mersey, a $6 million gain related to the sale of assets, and $6 million of startup costs at Dolbeau and Gatineau.

Of the $70 million of special items in the fourth quarter, only about $15 million are cash-related. Total special items, again net of tax, for the year included a $112 million charge related to asset impairment and closure costs for our various mill-restructuring initiatives, in addition to the mills I just mentioned, a $23 million non-cash gain on the translation of Canadian dollar net monetary assets, and a $22 million gain related to the sale of miscellaneous assets.

Total sales in the fourth quarter were $1.1 billion, down 2% from the third quarter. We shipped 27,000 more tonnes of pulp in the quarter, or 8%, as we ran the Saint-Felicien mill for all but four days following a five-week outage in the third quarter for maintenance and environmental work.

Shipments were also up 1.5% in wood products, but were down in paper grades -- 2% in newsprint, due to lower export sales; 3% in specialty products on lower demand; and 4% in coated, due to equipment failures at the Catawba mills.

Average transaction price in the coated segment increased $18 per short ton, while it remained stable for lumber and specialty papers. Newsprint slipped $6 per tonne in the quarter, mainly on sales to export markets, pressured by the strong US dollar, and pulp dropped another $23 per tonne.

Cost of sales was down $19 million or 2% compared to the third quarter, due to the favorable effects of maintenance timing, lower labor costs, lower recovered paper cost, and favorable wood product inventory adjustments.

Cost of sales included $4 million of additional costs with the ramp-up of Dolbeau, and $10 million of obsolescence charges for slow-moving spare parts. It also included $5 million of startup cost for the upcoming restart of Gatineau, which we have included in special items.

Distribution costs were down 1.5%, quarter over quarter, as a result of lower shipments in the paper grades, more than offsetting the additional pulp shipments.

Fourth quarter selling, general, and administrative expenses were down $6 million from the third quarter of 2012 due to the collection of previously written off receivables and the reversal of a capital tax reserve.

Closure costs and related charges were $82 million, $77 million higher than in the previous quarter. This relates to our various mill restructuring initiatives, investing the indefinite idling of a kraft mill and a high-gloss and book paper machine at Fort Frances, the permanent closure of a high bright paper machine at Laurentide, and additional costs related to the sale of Mersey. We also recorded a $7 million settlement loss as certain US pensioners elected to receive their benefits in one lump sum payment.

The $2 million decrease in interest expense in the quarter, to $15 million, resulted from the October redemption of another $85 million of our senior secured notes.

We recorded a $26 million income tax benefit in the quarter, primarily due to a release of valuation allowances in connection with an internal tax reorganization of our US Fibrek assets. We expect our effective accounting tax rate to be approximately 30% on a normalized basis, excluding currency translation impacts and other adjustments. We do not expect to pay meaningful cash taxes in the medium term.

Unit operating costs in the newsprint segment increased by $6 per tonne in the quarter compared to the previous, or 1%, mainly on account of lower shipments and a $4 million obsolescence charge for slow-moving inventory. Unit operating costs rose $22 per short ton in the coated paper segment, as equipment failures led to a 14% drop in shipments compared to the third quarter.

In specialty, operating costs per unit rose by $44 per short ton, largely as a result of lower volumes, the $4 million of costs associated with the wrap-up of Dolbeau, and a $3 million obsolescence charge for slow-moving inventory.

Unit operating costs declined 12% or $85 per tonne in the pulp segment, mainly as there was no major maintenance in the quarter. Shipments also rose by 27,000 metric tons.

Due to higher market prices for lumber products, we reversed $4 million of inventory write-downs taken in prior periods, while in the third quarter we took a $3 million provision. Together with a higher shipment volume, this helped to reduce operating costs per thousand board feet by $20.

Turning to the balance sheet and cash flow items, cash and cash equivalents decreased by $80 million in the quarter, closing at $263 million. Important elements included $85 million for the partial redemption of our senior secured notes, and $22 million spent to repurchase 1.9 million shares.

We generated $74 million in cash flow from operating activities in the fourth quarter, up $55 million from the prior quarter for a total of $266 million year to date.

Asset-backed lending availability remains high, and our liquidity stands at $782 million compared to $872 million at the end of the third quarter.

Balance sheet working capital decreased $89 million in the quarter to $775 million. This was due, in part, to a $27 million reduction in trade accounts receivable in line with lower sales, the reclassification of $56 million of deferred income tax assets from current to non-current, offset by a $10 million net increase in inventories.

I would add that in the fourth quarter we collected $31 million of road credits for prior years, and approximately $75 million for the full year 2012.

Capital expenditures were $67 million, up from $44 million in the third quarter. For the year, CapEx was $169 million.

In 2013, we expect spending on compliance and maintenance of business at 55% to 65% of depreciation and amortization, with an increase in spending related to value-creating projects.

Pension contributions were $30 million in the fourth quarter, and $124 million for the 12 months of 2012. Funding in excess of expense was $24 million in the quarter, and $95 million for the year.

For 2013, we expect to make approximately $130 million of pension contributions, of which $40 million will be expensed. These numbers exclude additional contributions, if any, as part of the corrective measures relating to the solvency deficit in our material Canadian plans. We currently-- we are currently working towards a solution with interested parties, but we won't have a firm answer on corrective measures until the second quarter.

As we've said before, we do not expect to contribute money to the affected plans for corrective measures unless we reach an outcome that is consistent with what we believe was the purpose of the funding relief measures, or we are compelled to do so.

I will add that yields on government securities in Canada, as at December 31st, 2012, were lower than those of December 31st, 2011, making the discount rate used to calculate liabilities for solvency purposes even lower than last year. Accordingly, we expect that the aggregate solvency deficit will increase as of December 31st, 2012.

Also, the accounting liability for pension and other post-retirement benefit obligation on the balance sheet increased by over $400 million to $1.9 billion as a result of the lower discount rates. The increased liability is net of a $35 million reduction resulting from the sale of Mersey and the payment of lump-sum benefits to certain US pensioners, both of which are permanent.

I will close by noting that we faced significant challenges in 2012. We spent the year at the trough of the pulp cycle, which outweighed the encouraging signs of recovery in the wood products segment, but we returned $67 million to our shareholders through share buybacks, reduced balance sheet working capital by a further $81 million from the end of 2011, and redeemed an additional $85 million of debt -- all of this despite the acquisition of Fibrek.

Our net debt stood at $271 million, as of the end of the year. This underscores our efforts to continue to strengthen the balance sheet and pay down debt, while, at the same time, emphasizing our commitment to deliver value to our shareholders.

Wayne, we will now open the call for questions.

Thank you. (Operator Instructions). The first question is from Sean Steuart from TD Securities. Please go ahead.

Thanks. Good morning, everyone. I have a few questions and I'll jump back in the queue. Richard, wondering -- let's start first with newsprint. Have you seen any indication that your offshore shipment program has stabilized? I guess in light of the extensive capacity closure announcements we've seen in Europe, any indication that things are settling on that front?

Well, certainly, the increased value of the euro is going to help. So, a few days ago it was 1.35 and I think if the euro continued to stay at that level that's certainly going to provide North Americans producers a -- some relief. And I think that we could potentially see more shipments on overseas markets, especially in the countries where it's US-denominated.

Okay. And then on the specialty paper side, you've noted the price weakness we've started to see in supercalendered grades. I know that's not as big a segment for your products. Can you speak to any price weakness you've seen in other uncoated groundwood grades in early 2013?

Well, I think that, especially on SCA that we see the -- more pressure, but I think that, as these grades -- you could switch from a grade to the other one, I think that we're going, certainly, to see pressure, also, on SCB and (inaudible), and what I would add, I think that we certainly made a decision to strengthen the machines that are making these grades to bring our costs down as low as possible and, basically, we're going to be able to compete with our low-cost -- lower-cost network.

Okay. And then the last question and I'll jump back in the queue. The 400 million board feet of incremental lumber supply you're expecting through the restarts, and I guess that was through mid-2014, can you give an indication of how you expect that supply to ramp up through the year? And I guess what I'm trying to gauge is your ability to increase shipment volumes in the near term to take advantage of this very strong pricing we have right now for lumber?

Well, I -- let's start with some of the resources. The improvements -- they have been done, and I think we already started to see the benefit, and then the ramp-up phase. And at Ignace, it's going to start as soon as the snow is gone to build the kilns and the (inaudible) mills, so, I think the production is probably not going to really -- we're going to start the sawmill fully later this year, to build the inventory, and we should be able to, early in the first quarter of 2014, we should see, also, additional production of production at Ignace.

And Atikokan, well, it's going to take probably 12 months. So, I don't expect -- we don't expect to see any production before April or May of 2014.

Okay, thank you. I'll get back in the queue.

Thank you. The following question is from Bill Hoffman from RBC Capital Markets. Please go ahead.

Yes, good morning, Richard and Jo-Ann. Richard, just could you talk a little bit more about the specialty business, sort of where your operating rates are right now and what you see as likely flexibility to have to shut additional capacity in the near term?

Well, it's a good question and it's difficult to answer. I think that, obviously, when the restart of the large machine, 400,000 tonnes, it's certainly going to -- it puts a lot of pressure on the market, and I think we expect to see lower reduction in demand in 2013. I think that when you look at uncoated in 2012 it went down by 16%, 20% on (inaudible). So, we don't expect to see that significant a decline in 2013.

But, again, I think that the market is certainly over-supplied, and that certainly a reason why we have -- we have decided our higher-cost machine and run the -- what we consider a lower-cost, very competitive asset to be able to compete in this segment.

And where would Dolbeau be operating at this point in time in its ramp-up?

So, we're where we want to be in January. So, we are running at our expected level, and we had an event where we lost the (inaudible) for a month. All the repairs are done. The power is sold in the grid, so now this mill is back to normal capacity. It's about 130 employees.

Okay, thank you. And then the second question just has to do more with the coated side of the business. I mean, obviously, coated was challenged, also, by some of the disruptions in uncoated grades. What's your thought about the capability of holding on to the price increase that went through in the fourth quarter as you go through the -- sort we see the weak first half of the year?

Well, on coated, I think that the decline in demand was only 2.3% in 2012, and I think that when you look at this market, there's always the -- always the risk of grade switching, but I think that the capacity and demand is more in balance, and I think whereas certainly -- certainly can fit in with the changes we have made at Catawba, even though it's taking longer that we thought, I think that we're confident on the coated market for 2013 that we're going to see more stability on the demand side.

Do you think you'll get some relief here, again, just given that move in the euro?

You know how key the exchange rate is. Obviously, the -- with a stronger euro, it's certainly a lot more challenging, let's put it this way, for the Europeans to export to the US. So -- and I think that as long as the euro remains strong, we're going to, probably, see less coated from Europe to North America.

Okay, thank you.

Thank you. The following question is from Stephen Atkinson from BMO Capital Markets. Please go ahead.

Thank you. Good morning. Great result.

Under the previous line management, the recycled mills were running at an annualized EBITDA of minus $22 million last year. I was wondering if you could talk about the changes you've made?

Well, I think that you have to -- we decided to adjust our production with customer demand, so -- and, basically, we have just found out that by pushing production too high we were just pushing the SOP, the sorted office paper, to the roof and that it was just not the right strategy.

So, I think that the adjustment, this strategic adjustment to, basically, bring the production down has help, also, brought the SOP down to a level where now it's profitable. So, I think it's just a question of trying something different here when trying the same thing and having the same result, I think, that doesn't work. So, we just decided to try something different which our philosophy to sell only profitable tonnes, and it has been -- we are very happy with the turnaround in profitability, and hope that we're going to be able to maintain it.

We had $10 million of EBITDA from those mills since we bought them in May.

Okay. Okay. So, I guess about a $62 million improvement, annualized.

In terms of the pension, was there an impact by closing Mersey?

Yes, there was. We benefited by about $30 million, net, by closing Mersey.

Okay. And in terms of -- like I know you have $65 million in additional annualized, as it were, cogen funds. Not to sound greedy, but are there any opportunities, other opportunities, or anything at Gatineau that you can do?

Well, Gatineau was, you're probably aware, has also 7 or 8 megawatt of power than the program that is offered to all users to sell green energy. We're also going to take advantage of it at Gatineau, when we restart the mill. So, the agreement has been signed with Hydro Quebec, so -- and now we're in the process to get the mill ready and, as you know, it's like Dolbeau. So, we're going to also add low-cost steam to the machines and, based on what we see, it's going to be a very low-cost mill, very well located to serve the market.

Thanks. Great, thanks a lot.

Thank you. The following question is from Tarek Hamid from JPMorgan. Please go ahead.

Good morning.

Good morning.

Could you talk a little bit about the -- about some of the equipment issues in the coated business, in particular, this quarter? Just given the great price performance, it looks like good cost performance away from the specific equipment issues. Just interesting to hear about what's going on.

Yes. We had many electrical issues. We also had lots of rolls crack in the rolls themselves, and we lost some covers on the press. And I think that the way that we look at it, obviously, with 154 people less, and less management, you have to retrain them and make sure that all the people know their responsibilities. So -- and I think that, in part, has been part of the failures that we had is certainly due to the level of knowledge that we have in the process. And now I think that we in January we had a pretty good month, production-wise, so I think that's -- that I would say that it's behind us now, that we should start to see some improvement.

But with changes as significant as that, it's not -- we made a decision on purpose to reposition the mill. It's going to work, but I think that the difficulties that we encountered was -- they were certainly bigger, if I could say, than what we had anticipated.

Thanks. I know Bill touched on this a little bit, but seasonality in coated has been really, really hard to model. Do you think you're seeing kind of normal seasonal price declines in that coated business this year, or is underlying demand and operating rates good enough to keep pricing up?

Well, I think that the first question there's always -- is always a slow quarter. So -- and I think that when you look at the order file so far that is certainly at an acceptable level. So, that I think it's too early in the quarter really to have a strong idea of where it's going. So, I think that as far as January is concerned, it's acceptable, and I think that I have to wait to see what's going to happen for the two remaining months.

Great. That's helpful. Then, just finally, on Fort Frances, could you maybe just talk a little bit about the decision to idle the mill versus sort of long-term other conversion options or other grade options you might have with the asset?

Well, the decision to idle the pulp mill and one machine, basically, we lost the one large customer just across the river, and we're limited at this mill with the dryer. So, it's a flash dryer and we cannot dry more than 240 tonnes per day, 250, 240 to 250 on a capacity of 560. So, obviously, with that in hand, we were not able to continue using.

What we're doing now, we're looking at the -- to reposition the mill. So, there's an investigation underway in what kind of grades that we could produce. So, I think that within a couple of months, two or three more months, we should be in a position to determine what the future of the mill is going to look like.

We're certainly optimistic that we can reposition the mill. It's good fiber base, as you know. There is a large cogen, 45 megawatt, that now we're running at probably two-thirds of its capacity. So, I think that there is some advantage at this mill that we can still take advantage of, but we have to find the right niche, and also find a way not to spend too much money to convert it.

Understood. Thank you very much.

Thank you. The following question is from Paul Quinn from RBC Capital Markets. Please go ahead.

Yes, thanks very much and good morning.

Good morning.

Good morning.

A couple of questions. Just one on the newsprint side. You've talked about export markets. I was just wondering, domestically, it looks like newsprint prices have cracked for the first time in over, like, two and a half years now. What's the pricing direction that you see in 2013?

Well, I think that the -- certainly, with the supply situation, newsprint price is going to be under pressure. So -- and I have -- I don't know where it's going to go. I hope that we're going to be able to run and run profitably, but it's supply and demand. And -- but, again, we're well located.

When you look at the mills, we have done everything that we can to bring our costs down to the lowest level, and we are having discussions internally, and I think that we may have to start to (inaudible), again. So, I think that's certainly our strategy going forward.

And the export market, as I said at the beginning, I think that certainly with the euro gaining strength against the US, the -- certainly what we have seen in January is that the countries where it's US dollar-denominated, now, we have certainly the opportunity to regain some of the market share that we lost in 2012 with a strong, very strong, US dollar.

Okay. And then could you just update me on the domestic versus export split in shipments in newsprint? Is that still around 60/40 domestic?

Yes, it's about -- export is slightly below 40%, 37%, I think, 37% if my memory serves me well. Yes -- so, it's 37%.

I suspected so. On the lumber side, you expect flat pricing. If you could update us on your mix there, sort of the percent random versus the percent stud?

Well, we're about 50/50, so stud is in Quebec with the small wood. As you know, we have many mills that are stud, and stud is, I think, down by $22 or $23, and random was up. It's the reason why it's flat.

Okay. And how does that mix change with the capital -- the CapEx projects at Thunder Bay, Ignace, and Atikokan?

Well, Atikokan is going to be random. So, it's going to be improve our mix on that side. So, and the Ignace is a 10-foot mill.

Okay, and just lastly, I'm just trying to reconcile the guidance that you gave on pension, which seems like you don't expect an increase in pension unless you're, I guess, compelled to do so. So, I'm just trying to understand the -- maybe you could go into a little bit more depth on what the remediation could compel you to do and the size of the issue?

Well, under the funding relief measures, if we miss certain targets in the first five years of the program, we're required by law to sit down with the parties, being the retirees, the unions, and both the regimes in Quebec and in Ontario to discuss corrective measures.

It's our view that under the original agreement we had with these administrative bodies that the Company was meant to have foreseeable and sustainable pension contributions for at least -- or, at least, especially the first five years of the program.

So, those are discussions we're now having. We're coming to the end of those discussions, and we'll know closer to end of March, beginning of April, exactly what that agreement will be.

Okay. I guess we'll wait for that. Best of luck. Thanks.

Thank you.

Thank you.

The following question is from Mike Riley from State Street Global Advisors. Please go ahead.

Good morning, gentlemen. Mr. Garneau, Greenpeace International recently announced the resumption of its market campaigns against Resolute based on what they have described as logging endangered species habitat. No long after that, Canaccord and other analysts publicly downgraded Resolute's share outlook. I was wondering, could you speak to the connection between these two, and what this means for Resolute's future perception and profitability?

Well, the -- I think that when you look at the CBFA, the -- all the participants, except Greenpeace, are at the table. We continue to have discussion and try to identify what is needed for (inaudible) and I think that if you look all the sustainable reports where we are committed to sustainable development and sustainable development is (inaudible). It's social and it's economic and discussions taking place at the table with the environment groups and the companies are still underway.

So, I think that I -- unfortunately, there is one participant that decided to leave, but we'll continue.

So, given that context, (inaudible) in particular the organization's input in the global markets, and particularly in the US market, where should we expect Resolute to be investing its sales effort in acquiring non-US customers?

Well, listen, I think that the answer -- a lot of difficulty to you, but let's look at what we had accomplished on certification. 65%, 65% of our land base, of the land that we manage, is certified FSC, and the customers that we sell to on the international market, they recognize that FSC is a certification, it's a pattern and standard that -- a standard that we -- basically that we have decided to focus on.

So, obviously, I think that there is some more effort and if you look at our sustainability report, again, our target is to achieve 85%. So, I think that with this target of 65% to 85% FSC certification, I think the -- our customers worldwide recognize that we manage, we manage sustainability in a very efficient way and we disclose everything that -- in our report. So, I think that we are pretty confident with the result that we have -- the results that we have had in the last two years and we continue to work to make sure that the three pillars of sustainable of -- were in balance.

And I think that our customers recognize it.

Thank you.

Thank you. The following question is from [Robert Johnson] from UBS Securities. Please go ahead.

Good morning. I actually just -- it's funny that my esteemed colleague asked the same question that I was going to ask. I am surprised that in your presentation and in the last quarterly report there wasn't more emphasis on this -- on RFP's stakeholder relations. You mentioned the arboreal agreement as one place where you were putting effort, but you have organizations who are -- have considerable influence, and, I guess, experience modifying the opinion of customers who are not in a good place with Resolute right now.

How are you dealing with that or how are you shifting your efforts to compensate for, perhaps, shorter-term contracts with those customers or a loss of customers?

On this one, it's going to be the same answer. We have only one environmental organization that is not at the table and it's Greenpeace. All the other ones we're still the same people and we're having a discussion with them and we're also on WWF's Climate Savers. I think that as a company we've done everything that is possible to do to make sure that our customers are comfortable with the actions that we take on the environment and sustainable development.

So, I think that look at -- I think that everything has been disclosed and we're certainly looking forward to the implementation of this agreement and we have no -- we have -- I think that we have -- the customers, we met with the customers, and they certainly understand our position on this.

Okay. And just one follow-up on a different note. I'm interested in hearing just your quick thoughts on India. This is a place where, I think, on a previous call you mentioned you were exploring, looking at shipments, particularly newsprint. Any further developments that you want to share with us on India?

No, India, as I've mentioned in earlier calls, certainly it's a large market. But we were challenged in India with the weak euro or the strong US dollars, but now that we have -- now that we have seen the euro gaining ground against the US, I think that we were able to regain some of the volume that we had lost in previous quarters.

So, it's -- really, it's a question of currency, and we all know that currency could have a significant impact on trade patterns, and -- but, longer term, it's certainly, because of the location, of our mills, on the river and close to port for the US mills, that we're very well positioned to take advantage, not only on the Indian market, but growing markets in the Middle East and also in Asia.

Okay, thank you.

You're welcome.

The following question is from Joseph von Meister. Please state your company name, followed by your question.

Hi, Richard. It's Bennett Management. What is the 2013 contribution from these new power-punch contracts compared to 2012? In other words, what's the incremental ramp in EBITDA we should expect from the startup of these myriad of projects and inclusion of those projects for a full year?

I don't think 2013 we're going to have a significant contribution, because we have to build it and it's going to start --

Power generation.

Oh, power? I understand (inaudible). Okay, Jo-Ann is going to answer on this one. She has all the numbers in her head.

Hi, Joe. Obviously, we've said we've got -- we've already got Saint-Felicien and Dolbeau up and running as of December. So, we'll get a full year from them, but Thunder Bay is just starting to ramp up.

What we've said is on an annualized basis, so when they're running at full speed, all three, we're talking about $65 million, approximately, of EBITDA.

And when will Thunder Bay be up and running?

It's -- we're expecting it in a matter of weeks, and then we expect that it will ramp up slowly. But we expect it to be at top operation sometime in the second quarter.

And you kind of dodged the bullet on the pension question. I think the corrective measures were advertised previously at $500 million. Is that still the number, or is it $500 million plus some new number due to the further reduction in discount rate?

No, the special corrective measures, the deficit that we're talking about, is $500 million related to the special corrective measure.

And what over period of time do you have to meet that?

That's exactly what we're in discussion about, Joe.

But, again, on this one, if I may, my view is that we have an agreement with the government and this agreement has allowed us to emerge from bankruptcy and we were supposed to have five years that the contribution was $50 million, minimum, and another -- 15, 1-5, of free cash flow, up to $15 million. So, $65 million, assuming that we have the cash flow.

So, we're working on this understanding that it was a deal when the judge and when the debt holders approved the restructuring, approved the plan. So, we're still working with this and having discussions with the authorities on this assumption, on this understanding.

And, Richard, what is-- from where you sit, what are you seeing in pulp?

Well, pulp, I think that we're cautiously optimistic. So I think that so far we have seen an improvement in -- certainly in China, and when you look at the numbers for 2012, especially in the fourth quarter, I think that Europe and the US has shown some improvement, and the demand was compared to the previous year was, well, slightly -- 1% less or 0.8%.

So, I think that we're optimistic for 2013. The economy seems to be reviving, certainly in Asia and certainly in the US. So, and with that, I think that we're certainly going to benefit on volume and, hopefully, on pricing.

Great, thank you. Great job this quarter.

Thank you.

Thank you.

Thank you. The following question is from Sean Steuart from TD Securities. Please go ahead.

Thanks. A couple of quick follow-ups. Jo-Ann, this quarter in your adjusted EBITDA number of $104 million you had a positive contribution from the corporate segment, which is a little abnormal. Can you speak to what factored in there?

In the corporate segment?

Yes, I think it was a $2 million positive this quarter.

Oh, that would be more of the -- we talked about that. We had recoveries for some receivables that we wrote off in prior periods.

Oh, okay.

Okay? Sometimes it doesn't all get fully allocated to the other groups.

Got it. And then, just honing in on the CapEx projections you gave this year, you talked about 55% to 65% of CapEx, which I guess would get you to $140 million, and then, obviously, you're spending a lot on discretionary high-return projects. I mean, given everything you have on deck on the sawmill side, and, I guess, a little bit more on the power, is $225 million in the ballpark for a right CapEx number for 2013?

We haven't really disclosed that. We're still working on our capital program for 2013, but certainly we would expect that it's going to be higher than the $159 million of this year, for sure, given those projects we've talked about.

Okay. All right. Thanks, guys.

Thank you.

Thank you. There are no following questions registered at this time. I would like to return the meeting to Mr. Lalonde.

Great. Well, thank you, everyone, for joining us today. Operator, that'll be all for us today.

Thank you. That concludes today's conference call. Please disconnect your lines at this time, and we thank you for your participation.