Resolute Forest Products Inc (RFP) 2014 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Resolute Forest Products second quarter 2014 earnings call.

I would now like to turn the meeting over to Mr. Remi Lalonde, Vice President for Investor Relations. Please go ahead, Mr. Lalonde.

Thank you. Good morning, everyone. Welcome to Resolute's second 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 on the Presentations and Webcasts page under the Investor Relations section of our website, or you can download the slides.

We provide additional financial and statistical information, including a reconciliation of non-GAAP financial measures, in our press release and the slides.

As always, certain subjects we will cover today involve forward-looking information. Our statements are based on current assumptions, beliefs, and expectations, all of which involve a number of business risks and uncertainties, and, accordingly, can change as conditions do.

Richard?

Good morning, everyone, and thank you for joining us this morning. We had a good quarter. All of -- for -- all of our segments delivered much stronger performance, as costs and margins normalized after the weather-affected first quarter.

We generated $108 million of adjusted EBITDA, $68 million more than the previous quarter, and $18 million more than the same period last year.

In Newsprint, we generated $35 million of adjusted EBITDA, up by $32 million from the first quarter; $19 million in Specialty Papers, up by $21 million; $37 million in Market Pulp, and it's up by $16 million; and $23 million in Wood Products, up by $3 million.

These results closed the door on the disappointing outcome of the first quarter, when winter's extreme cold caused a material increase in energy costs, production disruptions, equipment failures, and also distribution constraint. They also show the resilience of our business.

Thanks, in part, to our capacity initiatives, lumber shipments were very strong compared to recent history, although we continue to experience carrier equipment shortage.

Despite secular demand trends, we increased paper shipments and preserved margin as a result of ongoing initiatives to lower costs and optimize our asset base.

Our average transaction price in Market Pulp rose by 4% this quarter, reflecting, in part, a disciplined approach to markets in the face of slowing North American demand, and our unit costs not only normalized but were lower, in line with the consistent downward trend of the last few years.

Although our Specialty Papers segment continued to deal with the challenges of lower industry operating rates, particularly in coated mechanical grades, our newsprint, pulp, and lumber margins are higher than their 2013 average.

This is Resolute's business model. Our competitive advantage rests on our cost-focused strategy and diversified asset base, which, together, provide us the tools to maximize earnings power in this challenging industry.

Let's review the market condition and segment performance.

Total North American newsprint demand was 7% lower through June. Though demand for newspaper publishers was down by 9%, we continued to see demand growth from other users, and the demand was up 3%. Global demand was down, also, by 7% through May, including a 9% decline in Latin America, and 8% in Asia, led by a significant drop in China. Western Europe was down 3%.

Shipments rose by 32,000 metric tons this quarter, compared to the last, almost all in North America. Accordingly, we grew our domestic shipments to 60% of total newsprint sales, compared to 58% in the previous quarter, and 56% in all of 2013.

With our scale, financial strength, and lower cost operating platform, we have positioned ourselves as long-term, reliable suppliers for our customers, and the segment has responded well, especially in the domestic market. But we're not expecting much improvement in the export markets for the remainder of the year, based on slowing international demand.

The industry's North American shipment-to-capacity ratio was 92% for the first six months of the year, unchanged from the year-ago period. Recent industry conversion in the shipments suggests balanced conditions for the remainder of the year. Through six months, Western Europe capacity was at about 91%.

Our average transaction price has been essentially unchanged compared to the first quarter, but so far this year this is about $24/tonne lower than the average in the same period in 2013. Despite that, thanks, in part, to the weaker Canadian dollar and our cost-focused strategy, we made $57 of EBITDA per tonne shipped in the quarter.

North American demand for uncoated mechanical papers was unchanged through the first six months of the year. Demand for supercalendered grades, which represents 25% of our Specialty shipments, increased by 3%, and there was no change in demand for standard grades.

Within standard grades, however, we saw a 20% drop in demand for lightweight grades, in which we have only a small presence, and a 5% increase in demand for super-brite and high-brite grades, which represent about one-third of our Specialty shipments.

The industry shipment-to-capacity ratio was 91%, down 1% from the first half of 2013.

Demand for coated mechanical papers was down by 7% through June, and the industry shipment-to-capacity ratio was at 88%, unchanged from the first quarter, but down by 4% from the same period last year. Average transaction price for the segment was unchanged in the quarter.

Our white paper price rose by about $12 per short ton, but its effect was offset by weakness in coated and supercalendered grades.

Shipments rose by 8% during the quarter, led by stronger shipments of white papers, but also included improvements in coated and supercalendered grades.

We expect to see a seasonal improvement in shipment volumes next quarter, but the pricing is more uncertain, given the pressure of lower industry operating rates in coated papers and supercalendered grades.

Global demand for Market Pulp grew by 1% through June, reflecting stronger demand from China, especially in the second quarter, despite a 2% drop in each of Western Europe and North America. Global demand for softwood pulp was flat, but up by 2% for hardwood grades.

In North America, however, demand for softwood pulp was down by 6% compared to a 3% increase in hardwood demand. We saw stronger realized pricing in the quarter, up by an average of $29 per metric ton, with improvements in all the grades, but most of all, in fluff.

Our shipments, however, did not improve to expectations following the effects of weather-related production disruption and distribution constraints in the first quarter, in part because we consumed the equivalent of an additional 15,000 metric tons of hardwood internally. Inventory levels also pushed up slightly, as a result of our disciplined approach to markets in the face of slowing demand in North America, particularly for softwood and recycled grades, and a conservative position in the first half of the year as a labor negotiation contingency. We will work this inventory down in the coming quarters, but we will do so in a disciplined manner.

As some major hardwood pulp capacity increases are coming online, the balance of the year remains somewhat uncertain for Pulp. We are also concerned about the impact on our customers of continued activist intimidation and their inaccurate description of Resolute.

US housing starts have improved so far this year, but slowly. They average about 980,000 starts on a seasonally adjusted basis in the second quarter, or 13% better than the same quarter last year. The index price for stud lumber grades was higher in the quarter, but lower for random length grades. Accordingly, our realized price was marginally up by $3 per thousand board-feet.

Despite continued distribution constraints for lack of carrier equipment availability, a problem carried over from the first quarter, shipments reached 420 million board-feet, up 19%. This reflects our efforts to reduce inventory accumulated in the first quarter due to the softer demand from the abnormally cold weather. With inventory closer to normal levels, we expect shipments to normalize to a lower level this quarter.

Despite the ongoing slow recovery in the US housing starts, price of eastern grades are holding up through July.

We've seen recently a growing outbreak of spruce budworm in Quebec boreal forests, with visible defoliation expanding from 2.2 million hectares in September of 2012 and now in September of 2013, the last day that we have data, it's now up to 3.2 million hectares. The provincial government has responded by retroacting some harvesting activities to affected areas, which could result in an oversupply of certain species in the near term. It is too early to quantify the long-term effects, but it could potentially limit fiber availability and harvestable areas in the next several years.

I'd like to take a moment to highlight some important developments in the quarter. After the overwhelming approval of our US labor agreement in February, we are happy to have received the strong support of our Canadian unionized employees for the renewal of labor agreements at 11 Canadian facilities. I want to thank the unionized employees and their union leaders for working with us toward the shared goals of Resolute's long-term success, and to help preserve our position as a financially strong and reliable supplier for our customers.

We announced a research and development biomaterial joint venture with Mercer International, with the goal of developing commercial application for cellulose filaments, a new source of sustainable biomaterial made from wood fiber. These filaments can be used to improve the strength and durability of many commercial and consumer products. This initiative highlights the efforts we are making as an industry to drive innovation for the future.

We were also pleased to have been named to the 2014 Best 50 Corporate Citizens list by Corporate Knights, a globally recognized organization for its transparent and objective approach to measuring corporate sustainability performance. This recognition speaks to our ongoing effort to be a sustainable supplier of choice for our customers, and a strong civic partner in the communities where we live and work.

Finally, we continue to progress on our Wood Product capacity enhancement. We expect the Thunder Bay pellet plant to come online early in the fourth quarter. Located at the Thunder Bay sawmills, it will convert the residual material into a reliable source of renewable energy. Our 10-year agreement to supply Ontario Power Generation with 45,000 metric tons of pellets annually will help contribute to the province's goals to reduce its use of fossil fuels to generate electricity.

The Atikokan and Ignace saw mills in northwestern Ontario are progressing according to schedule, and are expected to start up production in early 2015. When they're up and running, they will boost our annual operational capacity by about 265 million board feet. With margins like we've had in the last 18 months, this represents potential additional EBITDA of at least $15 million annually.

Let me finish by noting that we generated 50% of our adjusted EBITDA from our Wood Products and Market Pulp businesses in the last 12 months, businesses with long-term growth potential. This fits with our strategy to retrieve profitability from certain paper grades and build on our growth businesses, but it's worth repeating that our paper segments continue to play an important role.

First, the diversified and complementary nature of our asset base offers the dual benefits of more stable earnings from multiple products, and the fiber management advantage of integration, and second, especially with our initiatives to optimize asset utilization and improve margins, paper generates significant EBITDA, which can be used to finance our growth.

Jo-Ann will now review our financial performance.

Thank you, Richard, and good morning, everyone. Today we reported net income of $19 million for the second quarter, or $0.20 per share, excluding special items. GAAP net loss was $2 million. The special items include, on a pretax basis, $52 million of accelerated depreciation and other closure-related costs, and a $17 million non-cash gain on the translation of Canadian dollar net monetary assets.

Total sales were $1.1 billion, up by 7% from the first quarter. In the first quarter of this year, we were adversely affected by weather-related production disruptions and distribution constraints, as well as operational issues and seasonality. This quarter, our shipments increased by 6% in Newsprint, 8% in Specialty Papers, and 19% in Wood Products. Shipments of Market Pulp were unchanged, and did not meet our higher expectations. This is the result of more internal consumption of hardwood kraft, and a more conservative approach to markets in the face of slowing demand in North America, particularly for softwood and recycled grades.

Overall, pricing had an $8 million favorable impact on sales, with an increase of 4% in Market Pulp. Pricing was essentially unchanged in Newsprint, Specialty Papers, and Wood Products.

Second quarter cost of sales was down by $9 million or 1%. Excluding the unfavorable effect of higher shipment volume, $36 million, and the stronger Canadian dollar, $5 million, our cost of sales fell by $50 million in the quarter. If you remember, the first quarter included $40 million of costs associated with the abnormally cold winter, and $7 million of additional costs related to operational difficulties.

Distribution costs increased by $14 million, mostly because of the higher shipment volumes, as well as increased transport and warehousing costs, some of which were carried over from the first quarter, but also because of the higher inventory levels.

Selling, general, and administrative costs increased by $5 million, mainly as a result of expense timing.

Our cogeneration assets, which we use to sell power to the market, improved our EBITDA in the quarter by $14 million.

Newsprint delivered cost fell to $568 per metric ton, down $55 or 9% from the previous quarter. Excluding the $40 per metric ton effect of the severe cold in the first quarter, costs were $15 per metric ton lower, or 2%, mostly because of lower maintenance and repair costs.

The delivered cost in Specialty Papers fell by $51 per short ton, or 7%. Operating costs dropped by $18 per ton, after removing the first quarter weather effects. This was partly as a result of our first quarter restart of the idle paper machine number five at Calhoun to produce mechanical grades in place of the Fort Frances mill, which we closed earlier this year.

Market Pulp delivered cost fell by $22 per metric ton, or 3%. They actually rose by 1% after excluding the $27 per tonne effect of the cold winter as a result of higher freight and warehousing costs.

Delivered cost in our Wood Products segment also rose 1% to $350 per thousand board-feet. The first quarter included a one-time reversal of certain export duties.

Closure costs and related charges were $52 million, up from $10 million in the previous quarter. The second quarter included mostly accelerated depreciation related to the permanent closure of an idled coated machine at our Catawba mill.

Cash and cash equivalents increased by $23 million to $263 million. Balance sheet working capital was $695 million as of the end of the quarter, down $10 million, which reflects the significant seasonal decrease in log inventories, offset by an increase in finished goods inventory.

Net cash provided by operating activities in the quarter was $63 million, compared to net cash used of $41 million in the first quarter, which reflects primarily the significant improvement to EBITDA and the seasonal buildup of log inventory in the first quarter, which was more than reversed in the second.

Capital expenditures were $46 million, $10 million more than the first quarter, as a result of project timing, including a pickup related to our Atikokan and Ignace sawmills, as well as the Calhoun continuous digester project.

For all of 2014, we expect to spend approximately $230 million of CapEx, on the lower side of our previous guidance, including approximately $160 million on value-creating projects such as the Ontario sawmills, and the Calhoun project.

Availability under our ABL credit facility at the end of the second quarter was $567 million, for total liquidity of $830 million.

Pension contributions were $41 million in the quarter against a $6 million expense, consistent with the first quarter. For 2014 we continue to expect total pension contributions to be approximately $160 million, of which an expense estimated at $25 million will be included in our operating income.

This year we modified our US other post-retirement benefit plans to encourage greater participation in a Medicare exchange program available under the US Affordable Care Act. In addition to securing high-quality healthcare for participants, this modification, along with similar initiatives undertaken since mid-2013, help to reduce our US OPEB liability on the balance sheet from $250 million as of March 2013 to $83 million as of June 30, 2014. The annual expense has also dropped by $16 million.

Great. Thanks, Jo-Ann. Kenny, let's open the call for questions, please. Operator, can we open the call for questions, please? Operator?

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

Thanks. Good morning, everyone. A few questions.

Richard, I'm wondering if you can go into more detail on Specialty Paper pricing. You touched on, I guess, some recent weakness for coated and supercalendered prices. I'm wondering if you can give us some context on what you're seeing for the super-brites and high-brites? I would imagine you saw some positive momentum in tandem with better free sheet pricing. Has that abated, and are you seeing any weakness for those grades?

No, I think that it's certainly high-brite and super-brite we had a pretty strong second quarter, and we're certainly optimistic for the balance of the year. I think that, as you pointed out, the improvement in pricing into uncoated free sheet is certainly helping these grades.

And I think that the pressure is more on uncoated mechanical, and I think that when you look at -- when you look at the data of uncoated mechanical, the demand year to date is down 7.4%, and the shipment to capacity is only 88%. So, obviously, we don't see it improving for the next quarter, and probably not in the fourth quarter. I think that we're certainly expecting to see more pricing pressure.

Obviously, on supercalendered there is also some pressure in this segment, too. I think that the -- there is some indication that some of the commercial printers are moving back from newsprint to SC. So, I think we're expecting, certainly, a seasonally better quarter in the third and also the fourth.

And, obviously, on newsprint, the last one, you didn't ask the question, but the machines -- the newsprint machines are going to be closed and modified to produce other grades is going to keep a reasonable balance on -- certainly, when you look at the capacity, shipment to capacity was -- it's 92% year to date, so with these, basically, machines moving away from newsprint, even though we have demand that is, well, year to date on newsprint it's lower than last year. Last year, if you remember, it was 9.4%. This year it's 6.6%. So, certainly the shipment to capacity should be maintained to the 91%, 92% range. And, obviously, should keep the pricing at about the same level. So, we were flat in the second quarter compared to the first quarter, and expect that it's going to remain the same in the third quarter.

Okay. And then, curious on the M&A environment for pulp and/or lumber assets. I know you're not going to tell us exactly what you might be looking at, but I guess I'm curious on what the opportunity set looks like now. Are you guys actively pursuing growth initiatives, or do you just take it on an opportunistic basis as opportunities come along?

No, I would describe it certainly we're very attentive on the opportunities that could present themselves. We're looking, certainly, at trying to keep on top of what could become available. So, I think that hasn't changed. We just want to make sure that if we do make an acquisition that it's going to be at the right price, that we're going to have the synergies and that there is potential for cost reductions. So, I think that has not changed.

And on the sawmill side, again, there is certainly opportunities. We haven't seen any for the time being that would make sense. So, we'll focus on building our capacity, the two sawmills in northwestern Ontario, that are going to start up in the first quarter of next year.

But, as well, we've made investments in our sawmills in Quebec to increase our productivity. We restarted the Maniwaki sawmill.

So, I think that we have also identified some other project that on the solid wood in our sawmills to improve our recovery.

And we have this big project at Calhoun on replacing the eight batch digesters by one continuous digester that is going to bring our costs down and also leave with more capacity now when they restart the machine number five on high-brite and super-high-brite. So, we're using more of the whole capacity. So, this project is going to make more pulp available.

And I think that the updating of Calhoun as I think as I mentioned that previously, that's -- the wood supply is very good, and there is a good infrastructure. We're looking forward for the completion of this project, and, as we speak, we're a bit ahead of schedule. So, it's good news for a project of that magnitude. It's $100 million that we're going to spend on it, but it's really going well on the execution of this project.

Okay. That's great detail. Thanks very much.

Thank you. The next question is from Stephen Atkinson from Dundee Capital. Please go ahead.

Thanks very much. Good morning. Congratulations on a really good quarter.

Starting off, in terms of the spruce budworm, can you give me some color on it? Are you able to use the timber? Where is it located? Response from the government?

Yes. Well, the infestation, obviously, when you look at the number of hectares has grown quite significantly between 2012 and 2013. What is -- and I wanted, really, to flag this information that this budworm is affecting, basically, mostly the balsam fir, and also the white spruce. And if you look in Lac St-Jean and the [Cote-Nord] it's the two areas now that are the most affected.

What is also worth noting is that the black spruce is affected by the budworm, but contrary to white spruce and balsam, does not die. I think that -- and I just wanted to give you some color. In Lac St-Jean, the black spruce percentage is about 80%. So -- and there is about 10% of the wood that is going to be affected. So, that is balsam, that is normally balsam die quite quickly, and what the government has decided to do is to harvest these -- this sector as quickly as possible.

On the north shore, Quebec north shore, the balsam is -- there is in higher proportion. It's about 25% of the wood profile. So, I think that, again, I think that in the next two, three, four years, depending of the expansion of this (inaudible), so the focus will be on balsam fir, and that's not a fiber that is as strong as black spruce when you produce mechanical grades. So, I think that we'll have to figure out a way to keep the right balance between black spruce and balsam that is the species that we're going to focus on.

But the government is working on it. It's going to have an impact. We don't know yet the extent of it, but I think that it's -- for the time being, it's manageable. So, we're going to keep you informed on how it's going to -- this infestation is going to, basically, spread.

I see. Are you able to make lumber or use it for lumber, as well, meaning the infected, like the white spruce?

Well, you can make lumber presently before it's too dry, but when the fir and balsam start to -- basically to die, it's -- you lose -- you can make the lumber, but you lose on the recovery, because you have more breaks.

Breaks, yes.

You have more downfall. So, I think it's going to, certainly, to have an impact on at least the sawmills, the one sawmill that we have on the north shore. I don't think it's going to be that significant in Lac St-Jean, where we have most of our capacity.

Okay. The other thing is that my understanding is that Greenpeace took pictures of storm-damaged wood and basically attributed it to Resolute. Can you give me some color as to that situation?

Well, you may know some details that I don't. I think that -- well, certainly, we're concerned about, as I said, the impact on our customers of this continued intimidation and the inaccurate description of Resolute. So, I think that -- I think that these allegations, certainly, with the sustainability record that we have and the forestry practices that are in place in Quebec and Ontario.

And I'd like to remind everyone on the call that Yale University did the study, worldwide, on the forest practices, and their conclusion is that the practices in Canada are among the most stringent in the world. So, and-- Quebec and Ontario did get a very good mark, and there is another group, also, from Finland that did the same study and came with the same conclusion.

So, I think that the people just forget how strict the provincial government, the Ministry of Natural Resources, or how much control that they have on the operation, on the practice, and I think that with the harvesting techniques that we have now that they are -- and I think that we have pictures in our presentation that shows that what we do helps regeneration.

We're surprised and disappointed by this attack, but I think that we will continue to defend ourselves and we certainly appreciate the support of the communities and the First Nations and other stakeholders that basically make a living of working in the boreal forests. They know what it is, so and I think that, hopefully, the -- you know free speech doesn't mean that you can slander and defame. That's all you have to -- it is has to be based on facts, and the interference with economic relations is not free speech.

So, and -- it's the reason why we feel so strongly about defending our reputation, but not only our reputation, it's also the reputation of the industry, and it's the reputation of the government in Quebec and Ontario, where we harvest wood. They have very, very stringent control.

And, again, we have, basically all the harvest in Quebec is we have to meet the ISO 14005. So, it's another layer of control that we have -- that the government has put in place, and so we feel really -- and I feel very strongly that we have everything in place to make sure that we practice sustainable forestry.

Thank you. So that -- is there support from the government or from the provincial governments on this?

Well, certainly, the Quebec and Ontario provincial governments now have decided to defend, basically, their practices. They are going to be present at industry meetings, and so I think that you're certainly going to see more of Quebec and Ontario in the next few months defending their records, because what the activists are doing, they are attacking the practices -- they are attacking, basically, the provincial government, because we are dictated where to harvest and we are dictated how to harvest it. We are dictated how to use it.

So, I think that the strategy to basically target Resolute is -- it's certainly they have the wrong target, and we feel really strongly about what we do.

Yes, thank you. So, on Calhoun, when do you expect the continuous digester to start up?

I think that it was planned to start up in the second quarter of next year, but I think that we should be able, probably, to start it up by the end of the first quarter of next year. So, we may be ahead by -- 2016, excuse me. We may be ahead a quarter or two on the project.

Great. And I assume there's a significant energy savings?

Well, energy saving, but most of all, it's going to be chemicals. We're going to use less chemicals, energy, maintenance. There's eight batch digesters now that we're using and replacing it by only one is going to make a significant difference.

And the other one, the other benefit is the increase in production, in capacity. Now we're quite limited with the restart of machine number five on high-brite and super-high-brite, we don't have enough slush pulp to supply the dryer or the pulp machines. So, with this -- with the improvement into the pulp mill, we'll be able to use all the capacity and we're going to have some excess. So, we haven't determined yet what we're going to do with that, but I think that, certainly, there is opportunity here when this project comes online that we'll have to identify to take the full benefit of it.

So, are you buying any market pulp now to run the machine, or is it just you're limited by the amount of slush pulp you have?

Yes, we're just limited. So, it's the reason -- it's one of the reasons why our shipments of pulp in the second quarter compared to the first and compared to last year, it's one of the reasons why we're down, because we use about 15,000 internally. But we don't buy. It's all slush going to the machine number five.

So, are you able to tell me what the increase in pulp supply would be?

It's about 90,000 tonnes that it's going to provide. So, it's not insignificant.

Yes, it is significant.

It's not insignificant, and you can imagine the impact on fixed costs.

On the pension, are you able to give me a guideline for next year, or should I use $160 million?

Hi. Hi, Stephen, it's Jo-Ann.

Hi, Jo-Ann.

We haven't finalized the numbers. Obviously, we have to do our actuarial evaluations, et cetera, but we don't see the contributions changing significantly from this year at this point.

Okay. And finally, can you tell me about your deferred taxes? Like, what is your situation for the US and Canada in terms of NOLs and so on, your NOL position?

Well, in the US it's mainly NOLs, our deferred tax assets. And, as you know, last year we took a full valuation against those assets for balance sheet purposes, because of an accounting requirement. Those NOLs are still available for use, even though we don't have them on our balance sheet. So, they're still available for use against earnings of future years.

In Canada it's a bit different because, as you know, in Canada you can choose to take or not take tax depreciation. So, a lot of the asset is more on the fixed asset side, although there is also NOLs carried forward. In that case, because of the -- largely because of the improvements in Wood, obviously, over the last couple of years, as well as the Canadian dollar, we're more profitable in Canada, so for accounting purposes we are able to recognize all of those deferred tax assets.

So, is it $1.8 billion is the -- is that the right number?

$1.8? No, the US is about -- assets, it's about $600 million, $700 million.

Okay, and --

Against which we've taken a full valuation allowance.

Okay. And in terms of Canada?

What's on the balance sheet now is almost all Canada. That's $1.3 billion.

Okay, great. Thanks so much.

Thank you. (Operator Instructions). The next question is from Paul Quinn from RBC Capital Markets. Please go ahead.

Yes, thanks very much and good morning. Just -- nice bounce-back after Q1.

Just a question on newsprint. Maybe you could give us some details on export markets and performance of your Mokpo mill?

Well, the Mokpo mill we have announced an improvement on the paper machines. So, we had some caulking issues, and by the end of the year we're going to do a modification to the former.

And after the announcement -- what is interesting, after the announcement, we were able to an additional volume, about 50,000 tonnes from a publisher, newspaper publisher, in the country. So, I think it has been perceived as a strong signal that we are there to stay, and, obviously, the mill net or the return on domestic shipments is way better than export, so, we're very encouraged by that.

This mill is the newest mill in South Korea, so we feel that with this investment that we're going to be very well positioned to continue to serve this market effectively, and that it's also going to improve our competitiveness in this area.

Okay. Thanks for that, and just on the Specialty Paper side, you cited a seasonal uplift in demand. It seems like if I recall the last couple years, we've been disappointed with that. Are you expecting this year to be any different?

Well, I think that uncoated, I think that the -- when you look at this segment, it's -- it is certainly a challenge, and it's -- I don't think that it's going to change. Its capacity -- there is an excess capacity over demand, and when you look at -- I'm sure if you look at the numbers. So, the decline in demand this year is almost a percentage point higher. So, I don't see improvement for the time being.

Optimistic on high-brite and super-brite, and I think that the high gloss is -- with the restart of the mills in eastern Canada, there is also some pressure on this. So, I think that there is, likely, some over supply that will have -- supply will have to be removed if we want to see the market coming into more balance.

And on SC, on high gloss, the shipment to capacity is only 88%. So, at this level, 88%, you have to expect continued pressure on pricing.

So, it is a situation like we see it now, the third quarter and the fourth quarter, well, it's seasonally stronger, but I think that the trend is not going to reverse and it's going to take some -- certainly some capacity closures to bring the shipment to capacity in a more favorable area, above 90%.

Okay. Thanks for that. Best of luck. Cheers.

Thank you.

Thank you. (Operator Instructions).

It looks like there's nothing else, operator, so why don't we leave it there for today. Thank you, everybody, for joining us.

Thank you. The conference has now ended. Please disconnect your line at this time. Thank you for your participation.