Q3 2020 Resolute Forest Products Inc Earnings Call

By logging onto the webcast using the link in the presentations and Webcasts page under the Investor Relations section of our web web sites and you can download the slides today's presentation will include non-GAAP financial information our press release and the appendix slides include a reconciliation of non-GAAP in for.

Nation to us GAAP financial measures.

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 statement in our press release and on slide two of todays presentation I will turn the call over to leave.

Yes.

Hi, good morning, and thank you for joining US today, we reported revenue of 40 million borrowed about just the EBITDA in the third quarter.

$3 million improvement compared to $37 million into several quarters, which is largely due to recent rally in lumber prices. It also includes a $29 million contribution from the US saw mills that we acquired earlier this year.

Segment.

We reported quarterly adjusted EBITDA of $2 billion in market pulp down by $14 million from the second quarter.

$6 million for tissue up by $3 million.

Turning on to growth or what products are $114 million and $6 million for paper up by two.

Together with our targeted a number of business.

One time acquisition of US all of his position us well for the recent spike in lumber prices contributing $38 million or EBITDA. This year.

Doesn't 40 or 57% compared to the second quarter.

As a result, EBITDA improved by $114 of the quarter to $139.

All of the market prices.

They're high in recent weeks the demand from the rebuilding remodeling sector as well as Rogue is holding stuff's been speak.

Speak to a strong market fundamentals as both national not associate on a whole builders in forest going to make advisors at recently said exists.

Existing hold inventories remained at little while the number of all also horrible has been growing steadily over the past years contributing to another build market.

Accordingly, we are making a high priority of bringing our newly acquired enduro, Arkansas solving online as soon as we can.

We are currently will target for the early 2021 restart.

We're at $95 per metric ton or what portion.

EBITDA in the quarter segment improved by $2 million to $6 billion.

Following a very difficult stretch over a cycle over a six month.

There are signs that paper markets activity is slowly and gradually starting to recover but we expect that the pandemic we'd have caused some measure to step change in the cigarette shipment decline threat.

Injunction price EBITDA for this segment improved by 3 million $6 million.

And the wood products segment, the delivered costs rose by $6 per thousand board feet, or 2%, mostly due to Canadian stumpage fees, which track lumber market prices.

Bind with a significant increase in transaction prices EBITDA rose to $139 million 114, better than the last quarter.

Papers delivered cost remained relatively unchanged the average transaction price improved slightly and EBITDA for this segment came in at $6 million for the quarter.

Yesterday, we entered into a 10 year secured delayed turned loan facility with Avis Smack you back for up to $167 million with an initial availability of approximately $114 million subject to certain conditions.

Borrowings under the Canadian dollar denominated facility are secure <unk> duty deposits and will bear interest at a commercial floating rate of interest equal to 145% above the Canadian bankers acceptance rate, which is about 20 basis points higher than our ABL facility.

The.

City is meant to be used to finance activities and support obligations in Quebec.

The strong EBITDA from wood products help to generate $100 million of cash from operating activities in the quarter.

We used the tailwind to further delever the balance sheet by repaying all of the $69 million of outstanding revolving borrowings under our credit facilities, except for the low interest 10 year term loan used to finance the acquisition of sawmills.

We also contributed to shareholder value by Opportunistically repurchasing four 5 million of our shares or 5% of outstanding for a total spend of $18 million in the quarter.

At quarter, and our liquidity had strengthened by $81 million to 477 million not including the new financing facility and net debt dropped by $62 million to $541 million.

We spend $53 million in capital expenditures in the first nine months of the year compared to $82 million in the same period of 2019.

We're still targeting $90 million for annual capital spending.

We made $20 million and softwood lumber duty deposits in the quarter, bringing our total deposits to $214 million, which is reported in other assets on the balance sheet.

We've also been in charge of Investor Relations I've been treasurer, and they've had a wonderful opportunity to spend two and a half years running one of our biggest and most profitable assets under bank.

The perspective and the experiences gained from these various roles have served me and I think the company very well each step of the way each.

Each of the role as a shaping in some way and I'm certain that they will help me is I assume the leadership of the company in a few months.

My first priority in the transition will be to continue to be the best CFO that I can be to support eve as CEO until his retirement and to execute faithfully on our business priorities.

Second we will be to listen to the board to shareholders to employees and to our communities about the things that are important to them.

For the price correction, we've seen over the last seven to eight weeks.

Hoping you can provide.

Some thoughts on.

Price variances from region to region and across grades and I guess, especially for some of the decking grades we've seen in the USA with where there's been extreme volatility.

More broadly speaking do you have a sensitive floor is is near for lumber markets in general.

Let's start with some some contacts there if you can.

Yeah. So.

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And lastly, the price we're going now.

But you know.

It went up.

Breaking the record prices for any of those.

It is on capital allocation for 2021.

Couple of questions on that front.

Your appetite for further returns of capital to shareholders.

Into next year as the balance sheet continues to evolve and.

Initial thoughts on 2021, Capex plans and any detail on specific initiatives you might be focusing on for next year.

Well I think as far as the Capex expenses.

We got asked everybody to discipline you know as you saw this year.

No we're still in the middle of this pandemic.

We've been very fortunate on the number side, but still pretty difficult to do other businesses.

Oh Wow.

For this.

Just to restart our El Dorado solving that keep going the investment Capex plan, we had that meal that we were going with the first step, but we have other capex going forward to copy the product.

So there is going to be pretty much business as usual and as we said three months ago. We.

We certainly have projects that are more interesting, but still not ready to talk about it.

Okay.

Thanks, very much guys. That's all I have.

Thank you thanks.

Your next question comes from the line of near Patel from CDC Capital. Your line is now open.

Great Thanks and.

Congratulations on your retirement.

Congratulations as well on the on your you real.

Thank you here.

I work for.

Sorry on the lumber side and as you know we've got the upcoming final determinations. Due later this month.

With the preliminary figures Resolutes didnt didn't see as much a reduction as it's as the Canadian rest of the cleaning industry are you expecting any meaningful change in your son relative position when the final comes up.

Yeah, you know.

You are right in north Fortunately, we've got to be a disadvantage compared to our candidate competitions, even when the wind that raged starting sometime at the end of November. So if you look at the numbers.

I always look at those areas.

Two different ways you have the antidumping case in the call, they're burning duty in case and as far as the antidumping, which is the one that we usually about eight years ago piece about marketing and.

Say strategy. So we are the lowest in the industry. So it means that we've been doing a pretty good job on it and Fortunately I called called her rate to what happened in the last distribution to us.

You know the.

The revision of the.

The stoppage of forestry regime byproducts are not done with the progress and the more they are done with the company and we're kind of doing the benchmark for Ontario, Quebec, and we are the only want so it's kind of the result of let's say another thing is the right result, what I'm, saying that's kind of the result that we got pocket, making alterra you add.

So we see what's going to go going forward and we think that that that range is wrong and what we're going to have to live with it.

So you know the next review or maybe some Victoria's that we got from the WT rapidly. So that's all.

All I can say right now you know the rate of the items you know.

That's you know being both the on the call over to do these kind of all of our cultural promotion.

Okay, great. Thanks for that event and I saw that there was a report recently I think that the Montreal Economic Institute, so highlighting it.

Central for Capex to increase its harvest.

Do you see much runway, there and any sense as to where the government is in potentially making some changes.

No way I mean, they've been commitment from government to review the you know the forestry system since we got the auction market and everything so actually we've got pretty good commitment the alternative of element as well to try to.

We'll see where they can do to get more supply so and of course after a certain period of time is going to be the second.

The second phase of this fourth revision option, we have is that what weve guided for about six seven years now. So it's nice it's okay to be reviewed but I can tell you right now that I haven't been that I haven't seen any I don't want to comment and we don't know what it's all about so I know what you're going to make.

He will be last week talked about it we're pushing for more wood supply.

It's really hard to say right now we don't know what the total also we'd all we are seeing the result.

Great and Remy could you any indication yet on Capex for 2021.

Yes, Joe So as you've mentioned heading into next year with the uncertainty that we are still facing in the market lumbers been great.

But the pulp and paper businesses haven't recovered to the full extent, yet so we're still going to manage fairly carefully into next year here.

So I wouldn't expect any material increases at least not at this point.

Okay, great well, that's that's all I had thanks guys.

Thank you.

Your next question comes from the line of Paul Quinn from RBC capital markets. Your line is now open.

Hey, Thanks morning, guys and congratulations on.

On the retirement and Remy on.

Promotions.

Thanks, Paul I guess it started in lumber just looks like shipments were up 16 million in.

Production, probably just slightly less than that up 14 with the inventory change what's your ability to two increases meaningfully in the in the short term and how should we think about that Thats started up volume come in at the El Dorado. When you when you get the mill backup.

Yeah, we.

No as far as increasing and Canada. The production, thus some opening more wood supply.

And as far as finished goods the reason that the ship as we've had lately on this quarter due to the goodwill dollars stay about the same this.

This is the capacity of kills capacity and the.

Referring to with the better side, so, but as far as a study.

In capacity in Canada. So we are pretty much running what we get with oversupply with what you're right. We have as far as the rate level is there anything more feet.

Capacity meal. So we expect when are we going to restart the restart on one shift for at least a couple of months.

And then you know being probably for capacity two months after that and hopefully you know after.

Four months or so reaching the.

You know the little though we'd like to be with us.

Moving to.

And the other one that we need to push.

Bush or is it better we.

Part of the brand integration is doing great, but the Glenwood, Arkansas.

It is now back on to shift that's what I wanted to do but we still have some ramp up to reach full capacity would that bad ones.

Okay. Thanks for that and then I think you said you took 30% downtime in paper in I guess in the spirit of accelerating the evolution of your business. Just wondering when you are going to make a decision on paper machine or facility closures.

Yes, well you know, we you are talking about closer or.

Yes, I mean, it looks like your cash, yes fly in down and so we.

Yes, so what we've done thus far as.

You are the ones that are close to inflows were equal will enable us.

We met with the communities and unions late late telling them that we don't see those mid we starting.

Soon so we go to heed the meals.

She'll silver spring I would say and see what's going to come up although it on the other side you know on the paper side, we had a pretty good that flexible meals could put it was different grades of paper and we took a two machine zone and that while in the white paper side, but the good news is now you know we started one of them.

On the four days a week, we I think the biggest while running that we.

The apportioned to make sure we can get all the rules are different papers instead of losing the all those whether it's beneficial for the company.

I think as an example, or would you have a big machine running we get around the small machines are solving.

Running did about four or five days, a week doing business over the weekend and we starting on the Monday, which has been pretty good for us right now.

All right. That's all I had better luck guys. Thanks.

Thank you.

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

Well, thank you all for joining us today.

Great. Okay. Thank you. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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