Resolute Forest Products Inc (RFP) 2017 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Resolute Forest Products Fourth Quarter and Year-End 2017 Earnings Conference call. (Operator Instructions) Please note that this call is being recorded today, February 1, 2018, at 9:00 a.m. Eastern Time. I would now like to turn the meeting over to Silvana Travaglini, Vice President Investor Relations. Please go ahead, Ms. Travaglini.

Good morning, welcome to Resolute's Fourth Quarter Earnings Call. Today we'll hear from Richard Garneau, President and Chief Executive Officer; and Jo-Ann Longworth, Senior Vice President and Chief Financial Officer.

You can follow along with the slides for today's presentation by logging on to the webcast using the link in the presentations and webcast page under the Investor Relations section of our website, or you can also download the slides.

Today's presentation will include certain non-U.S. GAAP financial information. A reconciliation of those non-GAAP numbers to U.S. GAAP financial measures is included in our press release and in the appendix to the slides.

We will also make forward-looking statements. Forward-looking information is based on our current assumptions, beliefs, and expectations, all of which involve a number of business risks and uncertainties and can change as conditions do. Please review the cautionary statements in our press release and on Slide #2 of today's presentation.

Good morning, and thank you for joining us today. In the fourth quarter, we generated adjusted EBITDA of $102 million, down from $118 million in the third quarter. For the year, adjusted EBITDA was $364 million compared to $263 million in 2016. Wood products and market pulp segments have generated $329 million of EBITDA in 2017, $155 million improvement over last year. Our result in the fourth quarter were supported by stronger pricing in both segments and higher shipments in our market pulp and newsprint businesses, but we are negatively impacted by the ongoing restructuring (inaudible), higher plant maintenance outages at several locations, seasonally higher fuel expenses as well as higher fiber cost, and finally, seasonally lower shipments in wood products.

An $8 million increase in the share based compensation expense was also recorded. As a result of the appreciation in our share price and continued performance. By segment, we reported adjusted EBITDA of $44 million in market pulp, an improvement of $17 million against the previous quarter; negative $1 million in our -- from our tissue operations; $65 million in wood products, down $ 8 million; $11 million in newsprint, up by $1 million; and negative $2 million in specialty paper, down from $18 million in the previous quarter, which I will discuss momentarily.

Pulp market remained solid during the quarter, as demand was strong and supply was limited by production disruption worldwide. Our realized pricing continued to rise reflecting price increase announcements for all major grades over the quarter, combined with higher shipments, our market pulp business realized one of its best quarter. The result of our specialty paper segment were unfavorably impacted by the ongoing restructuring of Calhoun as well as several maintenance outages. We also slowed down production starting in December, as a shortage of truck drivers and harsh winter conditions led to a lack of woodchips at our pulp and paper mills in Quebec. The restructuring and closure of our 2 paper machines, the thermomechanical pulp facilities and 1 chip mills at Calhoun, was complex. With mill-wide seniority rules under the collective labor agreement, 63 people moved to new roles, and 45 senior and experienced employees retired. Of the remaining, operating all the workers, 45% have been in new roles for a less than 1 year. This required significant retraining and prevented the Calhoun from achieving targeted result in the fourth quarter. Incremental improvements are expected over the next several months as we continue to optimize the cost structure and productivity.

Let's review our individual segments starting with market pulp. World shipments of chemical pulp grew 3% in 2017, shipment to China and North America rose 6% and 3% respectively, while shipments to Western Europe decreased 5% (sic) [0.5%]. Softwood shipments increased 3% globally, reflecting higher shipments to North America and China, both up 4%, while Western Europe remained flat.

World shipments of hardwood grows 4%, led by an increase of 9% in shipment to China, while shipments to Western Europe fell 1%. North America was essentially unchanged. Given the strong fundamentals, our overall realized pricing increased again this quarter, reaching $678 per metric tons, an increase of $28. Incremental market pulp production at Calhoun, following the closure of 2 paper machines at the end of the third quarter and no annual maintenance outages in the fourth quarter, led to an additional 40,000 metric tons of shipments. Compared to the end of the third quarter, our finished goods inventory decreased by 11,000 metric tons, and EBITDA increased by 63% to $44 million in the fourth quarter.

Total tissue consumption in the United States grew 1.8% in 2017. Converted product shipments increased 1.9%, led by away-from-home volume up 2.9%, while at-home grew 1.4%. Our overall pricing for the segment, which continues to include only the former Atlas tissue operations, increased by $50 per short ton in the quarter, largely because of product mix at -- in our at-home grades. While shipments of the away-from-home products and parent rolls remain comparable to the third quarter, at-home volumes decrease.

At Calhoun, we have achieved a significant quality milestone. We are now able to produce that tissue that is of equivalent quality to (inaudible) product, this allows us to better compete in the fast-growing premium product label market. We have also established and implemented sales and marketing strategy, which includes broadening our product offerings and quality tiers, rebranding as Resolute tissue, and reinforcing the sales team to better align with our product offerings. These initiatives are beginning to yield a result with additional sales volume secured for 2018.

Also, rising pulp cost have led to price increases, being announced by most tissue producers from away-from-home products in the first quarter of 2018. And in an involvement of increasing market pulp prices, we benefit from our integration at Calhoun as slush pulp is directly transferred into the tissue operations.

U.S. housing starts averaged $1,250,000 on a seasonally adjusted basis this quarter, up 7% from the previous quarter. Compared to 2016, overall U.S. housing starts were only 2% higher, but single-family starts, which consume significantly more lumber, has increased 9%.

During the fourth quarter, lumber prices continued to rise reaching their highest level in over the decade due to supply constraints from a very active 2017 forest fire season in D.C., and marginally improving demand in the U.S. housing market. Our realized price rose to $438 per thousand board feet in the quarter, an increase of 6% compared to the third quarter. The reference price of random length #2 and better increased by 10%, while stud grades decreased by 4%. Our stud mill -- our stud sawmills represent about 50% of our lumber production. For the year, average transaction price rose [22%] or $73 per thousand board feet.

On the other hand, shipments of wood products were down $65 million board feet, from record levels in the third quarter reflecting slower seasonal construction activity, uncertainty related to the announcement of the final duty rates and lower production at the Thunder Bay sawmills as a result of a fire in the kiln boiler. In 2017, we generated a record of $219 million of EBITDA in our wood products segment. North American demand for newsprint declined 11% in 2017, driven by a 17% reduction in demand from newspaper publishers, while demand from commercial printer was up 2%. While the industry production was also significantly lower, down 12%, including about 1 million metric tons of capacity reduction. Accordingly, the shipment-to-capacity ratio in North America increase to 94% for the year.

Global demand for newsprint was down 8% through November, with Asia and Western Europe both down 7%; And Latin America, down 6%. For the full year, exports from North America declined in line with global demand. In 2017, global capacity reductions of about 2.5 million tons exceeded declines in demand resulting in favorable short-term market conditions for newsprint.

Price increases were realized in the quarter than as publicly reported, we have announced further price increases in the first quarter both in North America and in export markets. Favorable market dynamics also led to a 22,000 metric tons increase in our shipments or 6% compared to the third quarter, as we decreased our finished goods inventory by 20,000 metric tons.

In December, we announced the possession of the remaining 49% equity interest held by the New York Times in Donohue Malbaie, which owns the Clermont newsprint machine, one of the most cost efficient in our network. Resolute continues to be a supplier of the newsprint to the New York Times. North American demand for uncoated mechanical papers was down 9% in 2017. Demand for supercalendered grades continue to drive this decline, decreasing 12%, while the demand for standard grades was down 4%.

Overall, industry production for the year was down 11% maintaining the operating rate at 91%. The lower industry production volume includes, the closure of 2 paper machines at Calhoun, probably offset by the restart of a paper machine at Alma, for over net reduction of about 200,000 short tons on an annual basis.

Coated mechanical demand was down 10% in 2017. North American production however, was down 12%, all over 300,000 short tons, an import -- the imports declined 4%. With the North American capacity closures, including our closures of the [TM2] at Catawba, the industry reached 95% shipment-to-capacity ratio in 2017. Although pricing gains were realized for coated mechanical as standard and uncoated freesheet grades, our overall average transaction price for the segment remained unchanged compared to the third quarter of due to sales mix. As publicly reported, further price increases for all uncoated groundwood grades and uncoated freesheet has been announced for the first quarter.

Given the restructuring in specialty papers and the production slowdown due to truck driver shortages, shipments were 36,000 short tons lower or 11%, compared to the third quarter, and the finished goods inventory decreased by 20,000 short tons. Lower volume and an increase in costs led to a negative EBITDA of $2 million this quarter for the specialty papers.

In January, the Department of Commerce announced the preliminary result of the countervailing duty investigation of imports of uncoated groundwood grades from Canada, requiring cash deposit at a rate of 4.42%, compared to an industry average of 6.53%. Based on this rate, deposit as -- could be as high as $20 million per year. Preliminary determination in commerce antidumping duty investigation are expected to be announced in March, with final determinations for both investigations, expected in late summer. Like the other capricious and arbitrary U.S. trade measures, the uncoated groundwood paper of preliminary determinations are without merit, and in this case, particularly troubling. One petitioner with a single mill in a reported 260 employees is manipulating the trade law, putting at risk over 600,000 jobs in the publishing and commercial printing industry. In the view of our attorneys, it is an abuse of the trade laws for competitive advantage.

For lumber, the ITC confirmed injury to the U.S. industry, and we resume making countervailing duty deposit at a rate of 14.7% since December 28, 2017, and continue to make antidumping duty deposit at the rate of 3.2%.

Commerce has also announced its preliminary results and its first administrative review of the countervailing duty order on SC paper from Canada. While preliminary rate of 1.79% was determined for the company, which is a significant reduction from the current rate of 17.87%, we continue to make our deposit at 17.87% until commerce issues its final result, which could be higher than 1.79%, and is expected in May.

During the fourth quarter, cash duty deposits of $13 million were paid for the cumulative total of $75 million recorded on our balance sheet. $49 million is attributable to supercalendered paper and $26 million to softwood lumber. Based on the current rates, our annual duty deposits on lumber and paper would be about $125 million. By year-end, we estimate that the company will have made a total of $200 million in deposit, with the U.S. treasury.

On the sustainability front, we continue to have 100% certification of Resolute managed woodlands to internationally recognize forest management standards. And we have fiber tracking systems, which have change-of-custody certifications. Our commitments extend well beyond 3 compliance with applicable forestry regulations, which in Quebec and Ontario are already among the most if not the most rigorous in the world.

Regarding our safety performance, we achieved the world-class OSHA incident rate of 0.76% -- 0.66%, we also reduced environmental incident by 40%. Special thanks go to the First Nation partners, mayors and the other community leaders, union representatives, customers and government officials who have stood us -- stood by us and the principal possession we have taken against misinformation spread by activists and their threats and intimidation tactics.

In 2017, our overall business and sustainability leadership has received significant recognition, with over a 25 awards and distinction on a regional basis, North American and global basis.

I will now let Jo-Ann discuss our financial performance before I conclude with our priorities and outlook for 2018.

Thank you, Richard, and good morning, everyone. Today we reported a 2017 net income of $12 million or $0.13 per share, excluding special items, compared to a net loss of $12 million or $0.13 per share in 2016. Earnings increased by $24 million on sales of $3.5 billion, so we're unchanged compared to 2016. The more significant special items pretax, include closure and related costs of $111 million, mainly related to the impairment of assets at Coosa and closure costs following the paper machine closures at Catawba and Calhoun. $27 million of startup cost primarily associated with Calhoun tissue, a net gain from disposal of assets of $15 million and nonoperating pension and other postretirement credits of $12 million.

Net income in the fourth quarter was $14 million or $0.15 per share, excluding special items. This compares to a net loss of $7 million or $0.08 per share in the fourth quarter of 2016, and net income of $31 million in the previous quarter.

Special items in the fourth quarter included a $13 million gain from the sale of our Mokpo assets, startup costs of $9 million, including $2 million associated with the restart of paper machine #9 at Alma and $5 billion (sic) [$5 million] of closure costs.

Total sales in the fourth quarter were $898 million, $13 million higher than the third quarter. Pricing increased in most of our segments, up by $28 per metric ton in market pulp, $50 per short ton in tissue, $25 per thousand board feet in wood products and $14 per metric ton in newsprint. In total, higher pricing positively impacted results by $29 million compared to the third quarter.

Benefiting from incremental pulp production at Calhoun and no annual pulp outages during the quarter, pulp shipments increased by 40,000 metric tons despite some transportation issues. Although production capacity was lower in newsprint due to the paper machine closures in Calhoun, sales volume was up by 22,000 metric tons as we reduced finished goods inventory by 20,000 metric tons.

On the other hand, shipments in wood products were down 65 million board feet, mainly due to slower seasonal construction activities. Specialty paper volume also declined by 36,000 short tons, following the restructuring initiative in Calhoun.

After removing the effect of volume and foreign exchange, our manufacturing costs increased by $6 million from the third quarter. This increase reflected mainly higher maintenance costs largely planned outages at several facilities, an increase in fuel expenses mostly on seasonal usage and higher fiber and operating costs in our wood product segments, offset in part by the benefit of lower fixed costs following the paper machine closures at Calhoun.

Compared to the third quarter, market pulp all-in delivered costs improved by $12 per metric ton, mostly because of higher shipments, offset in part by an increase in plant maintenance outages. With higher pricing and volumes EBITDA rose by 45% to $113 per metric ton. Despite the reduction in costs in our tissue segment, which were unfavorably impacted in the third quarter by Hurricane Irma, the delivered costs remained essentially unchanged due to lower volumes.

In wood products, the delivered cost increased by $27 per thousand board feet in the quarter compared to the previous resulting mainly from the higher fiber cost and lower volume. With realized prices increasing by $25 per thousand board feet, EBITDA remained relatively unchanged at $139 per unit.

Newsprints delivered cost was $540 per metric ton in the fourth quarter, up $14 due to higher maintenance cost, mainly from equipment failures and lower contribution from cogeneration assets, due to the planned annual outage at our Thunder Bay mill, partly offset by the benefits of lower fixed costs, following the closure of paper machines at Calhoun. Although costs were higher, EBITDA per metric ton remained largely unchanged at $27 due to higher prices.

The delivered cost in specialty papers rose by $64 per short ton to $703 due to several maintenance outages as well as the costs related to the restructuring at Calhoun. Lower volumes and higher costs reduced EBITDA to negative $2 million this quarter per short -- or $7 per short ton.

Our selling, general and administrative expenses were higher in the quarter mostly due to an $8 million increase in our share-based compensation expense, as a result of the company's performance and increase in share price, which rose 119% during the fourth quarter. Our distribution costs were also $4 million higher in the quarter, largely due to the various transportation issues related to the shortage of truck drivers, particularly in Quebec.

During the quarter, our cost position -- our cash position, excuse me, decreased by $32 million to $6 million. We repaid $51 million under our revolving credit facilities, bringing our total repayments since the end of the first quarter to $99 million. Total debt was reduced to $789 million at year-end, and liquidity rose to $418 million. We have continued to deleverage, repaying another $30 million so far in 2018.

Capital expenditures were $28 million for the quarter, $8 million more than in the previous quarter. At $164 million for the year, including $90 million on the Calhoun tissue project, we came in below the 2007 target of $185 million, largely due to the timing of project expenditures. The total project cost for Calhoun tissue, remains as previously disclosed at $295 million.

For 2018, we expect to invest $200 million in capital expenditures, including several investments to improve productivity and yields at our sawmills as well as increase our pulp production capacity.

In December, the company became the full owner of Clermont -- of the Clermont operation by acquiring the remaining 49% interest in the Clermont newsprint machine for $15 million. We also sold our permanently closed newsprint mill in Moscow, for $18 million.

Pension contributions were $23 million in the quarter compared to an expense of $7 million. For the year, we made $132 million of pension contributions and $11 million of OPEB payments compared to an associated expense of $29 million, consistent with our earlier guidance. Total pension contributions decreased by $30 million when compared to 2016 as a result of our voluntary exit from the Quebec funding relief regulations and other steps undertaken to optimize our pension contributions. For 2018, we expect to make pension contributions of $125 million, and OPEB payments of $15 million, a further reduction when compared to 2016.

Despite the decrease in the applicable discount rate and the unfavorable currency impact, the net pension and OPEB liability on our balance sheet increased by $40 million at year-end to $1.3 billion, largely the result of strong asset returns and our ongoing pension contributions. Based on the current applicable funding regulations, our funding deficit is $518 million lower than our net accounting liability. The enactment of the U.S. tax reform in December, did not have a significant impact on our 2017 financial results and does not impact our cash tax position. We still do not expect to pay cash income taxes over the medium term.

I will now turn it over to Richard, for concluding remarks.

Thank you, Jo-Ann. We have established 4 priority areas for 2017, and our actions in those areas have delivered important benefits. The impact of our operational improvement efforts clear in our annual results particularly in our paper segment. The capacity closures and restructuring initiatives undertaking -- undertaken at several mills, have contributed to our improved profitability this year, and we expect additional benefits in 2018 from the current restructuring at Calhoun and the restart of paper machine #9 at Alma.

Our 2017 results also benefited from the incremental production in market pulp and wood products, resulting in part from the strategic investments we have made over the last several years. For our tissue operations, we achieved the required improvement in product quality, and with our new experienced tissue team, we have redefined our sales and marketing strategy. We are now well positioned to benefit from the growing demand for premium private label tissue products. In terms of financial flexibility, we have continued to deleverage. Since the startup of the Calhoun tissue machines at the end of the first quarter of 2017, we have reduced our borrowing by $99 million, including $51 million in the fourth quarter of 2017, despite making duty deposit of $48 million in 2017.

Our belief in the importance and value of free trade is unchanged, and we continue to defend that position deploying major efforts to mitigate the capricious and arbitrary U.S. trade measures. We applaud Canada for picking an increasingly firm principal position in its approach to trade with the U.S., demonstrated most recently by their WTO complaint, challenging a host of measures and consistent with the U.S. obligations under the WTO.

For 2018, we have established 3 corporate priorities. First, we will complete the ramp-up of our Calhoun tissue operation and continue to secure business through superior quality and broadened product offerings. Second, we will focus on our capital spending, on improving the overall productivity and yields at our sawmills and increasing our pulp production capacity. Finally, we will continue to reduce costs and complete the optimization of the specialty paper operations following the 2 paper machine closures at the Calhoun and the restart of the paper machine #9 at Alma.

While we have implemented measures to mitigate the impact of truck driver shortages, we expect this transportation issue to continue to affect our business and result in 2018. We remain cautiously optimistic about our pulp business, given the impact of any incremental demand from China, due to a reduction in import licenses from recovered paper and the limited capacity additions forecasted to come online active Q2. As publicly reported, we have announced further price increases in the first quarter. Our short-term perspective in tissue remain the same. Our leadership team is focused on improving our market access and benefiting from our integrated pulp to offer high-quality products in an environment of increasing market pulp prices. We expect to see result of those efforts in 2018.

In wood products, we expect lumber market to remain generally favorable given the expected demand growth in the U.S. We anticipate that this segment will continue to be a key contributor to our overall profitability. Industry capacity reductions in both newsprint and specialty grades, have exceeded the ongoing demand decline in the past year. As publicly reported again, we have announced price increases in Q1 for newsprint, uncoated groundwood paper and uncoated freesheet.

And as you know well aware that this morning press releases, today marks an important day of transition for Resolute as well as a personal milestone for me. After 7 years serving as President and CEO, I have determined that now is the right time to handover the responsibility. I take pride in what we accomplished together over the past years. Today, Resolute is a stronger and more sustainable organization, and our shared values are truly part of the organization's culture. This is a challenging industry, and we have built a dynamic and resourceful team and a more resilient and competitive operations.

Our strategic path is clearly defined, and I believe the future holds great promise. I'm pleased that Board of Directors have selected and appointed Yves Laflamme as Resolute's new President and CEO. He is the right man at the right find for the company. He has a wealth of experience, the necessary leadership skills and a proven track record of success. I am considering the Resolute is in good hands while I move to a new chapter in my life. Yves?

Thank you, Richard, and good morning. So well, Richard, not so quickly, Richard with that new chapter. We look forward to having your generous council and support now that you are officially a valued advisor.

I'm certainly honored to take on this leadership role at Resolute. I've been with the company and its predecessors for 37 years. With that, I have a good deal of knowledge and I'm excited to face the challenges and take advantage of your 40 days that lie ahead. Thank you, Richard for your incredible contribution to Resolute. You're indelible impact has in many respects redefined the company. Under your leadership, we have been an organization that is both profitable and sustainable, meeting the needs of customers, while creating shared value for so many other partners and stakeholders. You have led by example, and you are all -- we are all grateful beneficiaries. So thank you very much, Richard.

This concludes our formal presentation. Operator, we will now open the call for questions.

(Operator Instructions) Your first question comes from Paul Quinn from RBC Capital Markets.

Well, congratulations Richard on an amazing career and I'll miss your honesty and more importantly, your passion. I thought you'd never retire.

Well, it was my intention, but at sometimes in your life, you have to review your priorities.

Okay just maybe a couple of questions on the company's starting with the pulp segment. We saw December World 20 stats, it looked like things are in balanced conditions, but of course, we got the Chinese New Year coming up, and I think, it sounds like, and it looks like price momentum has slowed a bit. What is your read on the overall market?

Well, I think that the -- we will start with (inaudible). I think that obviously a bit more capacity announcement for the first quarter, but after that, I think that we're basically going to benefit from this market. And we haven't really had, at this point, a clear indication of the import license from China, but if there is really reflection at AT apply this 0.5% flash limitation, I think that there are certainly more demand that is going to come from China. And I think that it's going to benefit our pulp segment, but I would say the industry as a whole.

Okay, then just switching over to tissue, you described that you've got more volume secured in 2018 here. Just wondering, what the quantity of that volume is? And when you're going to be integrating the Calhoun asset into the tissue segment?

Well, I'm not going to confirm the volumes so at this point, I think that we have made progress, Patrice Minguez, our President of the tissue operations is on the road on Coosa all the time now, and has been meeting with customers. We have secured additional volume, and I think that it's going to start to show up. So I think that the other progress also that we made at Calhoun, because you know that's -- it's a new machine, it's a new operation, and finally, the -- also the manager that is in charge of the machine at Calhoun that used to work with Patrice Minguez has succeeded that to be able to produce bath tissue that has the same quality, characteristic than the tissue made on a TAD machine. So -- and I think it is a breakthrough for us, and now we have -- we are able to -- also to maintain a higher production, because we had some issues -- we had to correct all the issues at the mill that were not resolved. So I think that certainly I'm looking at 2018 as the year where our operations at Calhoun are going to benefit. And you know with the pricing announcement on pulp, I think, that the machine -- additional machine that gets slush pulp directly from the mill is going to certainly have an advantage. And now on the quality side, we have resolved the issue that we had. So I think that we're going sooner need to see a ramp-up in to volume that where last year, we had certainly some challenges. But -- and I think the other point, if I want also to had, that is also had it to the sales team and we knew how important it is to have the right guy and to have the right relationship with customers, and we're also making progress on this side with the -- while beefing up to that -- beef up -- we are beefing up the team on sales.

Okay. And you mentioned the away-from-home price increase in Q1, and the fact that you guys are somewhat insulated on the significantly higher pulp prices year-over-year, have you seen anything on the consumer side in terms of a price increase or de-sheeting that would help offset some of the cost inflation like the industry has seen?

We haven't seen the price increase announcement, but I think that the pulp cost is going eventually to trigger up maybe some announcement, but that's a very difficult to -- we are going to wait and see what that -- how the market is going to react to that.

Okay. And then last question I had was it seems like the contribution from the cogen was down about 10% year-over-year. Is there anything going on there that I should note or is that expected to come back after like...

It's maintenance so we had the cold outage at Dolbeau so -- and also at Thunder Bay, and Thunder Bay, you know it's where we had the big turbine, 55 megawatts, Dolbeau is about 23%, 24%. So we had that -- those 2 were affected in the fourth quarter because of maintenance that we have to make on the turbines.

Your next question comes from Hamir Patel with CIBC Capital Markets.

Well, congratulations Yves. And Richard, we're certainly going to miss your strong voice in the industry. Richard, I've thought, perhaps we'll start some of the operational issues that you mentioned for the quarter. And I was hoping you might be able to quantify for us the lumber business, what was the EBITDA impact from that the kiln fire you had at Thunder Bay? And then also in specialty, what was the impact to EBITDA from the restructuring at Calhoun, and on newsprint, the equipment failures that you guys highlighted?

Okay. Well, let's start with the Calhoun restructuring. Just to give you an idea, so it's a -- it's the only mill that we have and it's a (inaudible) with the mill-wide seniority, it's the -- it's not by department as you usually see in pulp and paper mill or even studded wood in sawmills so -- and what happened with that, so we closed 2 machines, we closed the TMP facility, and we closed also one of the log line and chip mill plant. So that has an impact on about 200 people that were affected by that in terms of possession reduction. So now what happened, with the mill-wide is that the employees basically began bid on jobs anywhere where they believe that well, they are going to like it, so it's -- it's really their choice. And obviously, now what happened with the key department like the recovery board or the power board, if you look at the pulp mill and you look also at the machines, the pulp dryer plant, machine #4. So we have -- when you look at the key possession, we have 45% of the possession basically that all have been filled with people that have less than 1-year experience. So you can imagine, you have to learn and even though we provided training, we provided the manual, we have done a job in advance to make sure that we would mitigate the impact. But I think that there is nothing better than while on the job and you have to learn. And sometimes, when you have, for example, a preview or mechanical breakdown, then you have to learn how to react to that. So I think that if the difficulties that -- we knew that, we would have, but I think that that's -- it's a bit more complex because of the many employees basically that have to relearn the skill and experience, well it's the sum of your errors and I know what it is. So it is the way -- it's the reason why we had some difficulties in the quarter, but I think that we're going to certainly see incremental improvement in the first quarter then second quarter. So I think there is good progress that have been achieved. On the truck driver side, I think that it's -- certainly there was a shortage, but we're not the only one that is facing this reality. I have seen article into the Wall Street Journal, also indicating that there is a shortage, but it is not only drivers. So we have a labor shortage. In the small northern communities, we knew that we would eventually have a challenge, but, I think, this one was not anticipated, and was not as really important as we saw in the last 2 weeks of December then in the early January. So I think that with that put in place basically a strategy where we have now using a larger trailers to haul the chips to the paper mill. We are using the road -- the Woodland road, that our larger -- to be able to use this large equipment. And we have -- also have a special hiring program to try to attract more people in working, because it's all subcontractors. So all of the transportation is done by contractors. so we are working with them to give them our support to address the issues that we have to address. And don't forget also that this has been -- we are trying to address it by increasing also the volume that could be delivered to the pulp and paper mill by rail. but the mills are better equipped to receive trucks. So it's difficult with the rail, because it's an extra operation. But I think that certainly with the rail delivering chips, it's going to help. And we're going to continue to work to address this issue and try to have training program to have more of the drivers. What is the other question? So I think that I...

Yes. I mean I was trying to get a sense -- I'm just trying to understand if you were to look at the sort of operational issues that you pointed to the fire at the -- at Thunder Bay sawmill, the restructuring at Calhoun and some of the equipment failures in newsprint. You summed them all up. What do you think was the drag to EBITDA in Q4?

Well I think, the way to look at is the Thunder Bay kiln with 10 million board feet we were down 64 million board feet, so I wouldn't suggest that's a large portion. And again, I'm going to focus on 2 things: specialty papers because of these issues that Richard has described, was down $20 million; and we had $8 million of adjustment in our SG&A, because of this seller -- mainly because of the seller price performance during the quarter. So if I had to sum up Q4 versus Q3, those are the 2 major items. Obviously, we would like our price -- our share price to go up again in Q1 to get that type of share price adjustment in SG&A, but it's not expected. And certainly for specialty projects, as we wrap up and continue to the difficulties at Calhoun, I see no reason why we get similar levels in specialty projects as we've seen in prior quarters.

Great. Thanks for that Jo-Ann. And perhaps a question for Yves. On the priority slide, you talk about improving output this year for both lumber and pulp. Just curious what level of production you're targeting for both segments? And given your background and the wood products business, just curious what you're thinking of potential for the Eastern Canadian industry in both Ontario and Quebec to ramp up production from here?

So you mean on lumber?

And pulp.

And pulp?

Yes.

So as far as Eastern Canada, we see a potential to ramp up production with better productivity, of course, and as was mentioned, we're investing to have a better yield on lumber. So it means that less the byproducts and more lumber. So as far as having -- increasing more than that, the restriction is mostly on the wood supply. As you know that, we have a certain limit as what -- how much volume we can proceed. So as a company, we still have interesting gain to get with the new assets we have in (inaudible) in Northwestern Ontario. So and I believe, we can do better on that side and increase production on lumber. So on pulp outlook, of course, you know we believe that we can increase some volume for the Saint-Félicien pulp; we are going to work on it. And the risk is mostly from the U.S., so we believe that we can do a better in volumes that could be put in the market from our asset in the U.S.

That's helpful. Any numbers you can put around that volume uplift in both segments?

Well, the -- if I may jump in, here on pulp we've produced about 0.5 million tons per quarter so -- or slightly less. So I think that what we have flat land for Saint-Félicien Calhoun, we haven't reached again the full potential on the pulp mill itself. And we have some investment to make on the pulp dryer to increase the capacity. So if you -- Calhoun is a special situation, we used to have 350 machines in pulp dryer and the pulp dryer was used basically as the sewing machine to -- when the machine were not using the pulp, the slush pulp, so the pulp dryer was drying the excess. But now that we have only one machine, the pulp dryer has to run basically the (inaudible) 500 and between 500 and 600 tons per day. We are not there yet, and obviously, when you push the equipment, you just realize that there is some issues that you have to address. And there is some reliability items, because obviously when you use machine not at full time, there was some work that was not done. So that we are in the process of addressing, and I think that it's going to, with the efforts that we are now -- that we focus on this piece of equipment, especially with a good market condition that we have on pulp, we are going to push and accelerate, speed up, the effects on the pulp dryer to increase the production. So we have the capacity into the pulp mill, so we have to get this machine really running to where the potential is.

Your next question comes from Roger Spitz with Bank of America.

Firstly, could you tell us the balances on each of your senior secured credit facility and your ABL credit facility at both December 31, 2017, and also as of, I guess today, since you repaid a further $30 million. I just want to know how those split up?

Okay. Roger, it's Jo-Ann, I'm just trying to flip through on that. Sorry, it's not...

Do you want me to ask my second question while you look that up? The tissue segment, the sales and EBITDA is only for Atlas tissue. Can you say, which segment the Calhoun tissue is -- results were reported? And what was the Q4 '17 sales and EBITDA of the Calhoun tissue business?

Roger, it's Jo-Ann again. Yes, actually the Calhoun tissue business is included cost net off sales in our start off expense, which was $9 million for the quarter, $2 million of which was Alma so the rest was Calhoun tissue mill.

Got it.

Okay. And just your question, the borrowings for the ABL were $61 million as of December, sorry, and for the farm loan, a total of $129 million, including the term loan of $46 million.

Okay and...

I don't have the information on how those were affected with the $30 million of repayments in January. And I'd predict that we'll talk to you about that maybe a little later.

Your next question comes from Sean Steuart with TD Securities.

Congratulations, Richard and Yves. A couple of questions. Sorry to dwell on this but the specialty papers, cost inflation we saw this quarter you addressed; most of it related to Calhoun. And Jo-Ann you suggested you would expect to see it normalize back to previous quarters' levels, maybe the Q3 levels in due order. Just to focus on that a little bit, is that something we can expect over the first couple of quarters of 2018? Do you have any perspective on how long that might take?

Well it's going -- we're going to see the improvements of, and obviously, we're spending a lot of time on training and retraining. And I think that I mentioned that it was going to be incremental, but I think that by -- I'm confident that at the end of the -- at the end of second quarter that everything should be in place so that all the training and the -- really the retraining, because obviously, when you have operational issues of the -- our managers are making sure that the people that are working into the control room that they get the right training and share all the information. So I think that with a number with 45% that has less than a year or so, I think that you can see how much effort is needed to address this. But I think that it's going to be done maximum 6 months to have the skills, basically. And they're going to see the experience, but and then going to see the skill to be able to operate it efficiently.

Okay. Thanks for that detail. Also question -- you mentioned that the various price increase initiatives in newsprint, obviously, in North America, but you mentioned offshore markets as well. I'm just wondering if you can provide a little bit of detail on what you're focusing on in terms of magnitude and timing in offshore markets?

So Sean is just looking at the -- well, I think that the -- we have that -- it's about $40 that has been announced for some of the grades. And we also announced $22 on newsprint and that is going to be in February. So and overall -- I'm just look at the numbers now, because there are so many increases -- announcement that we have made (inaudible) affected. Okay, so when we do get that at March, for example, so on average it's -- when I look at the newsprint, it's going to be USD 22, that's we're going to benefit in March. On uncoated mechanical, again, we're talking about $25 -- between $25 and $30 and $40 depending on the grades. So it's all on FCA and FCB and white paper. So overall, a lot of increase here to add on call. But we also have increased in February, we have another $20 on northern softwood. We have $10 on the softwood from the south. On the hardwood, we have $30 both north and south. And we have $40 in February on [flos] . So all this detail are going to be implemented in, I think, in February and March.

And just for the offshore market specifically in newsprint, Richard. Is that broad based across all your export markets you're looking for price hikes?

Well, initial, for example, we see so I think that we are expecting $50, and in Canada, it's $40. In Europe it's between $30, $35 and $40, and $15 to $20 in U.K. In Latin America, it's also $40. $50 in Asia, $40 in Latin America, in Europe between $35 and $40, in U.K. between $15 and $20.

There are no further questions at this time. I'll turn the call over to the presenters.

So that will conclude our call for today. Thank you.

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