Q4 2021 Resolute Forest Products Inc Earnings Call

Good morning, My name is Julian and I will be your conference operator today at this time I would like to welcome everyone to Resolute forest products fourth quarter 2021 earnings release call.

Speaker 1: Good morning, my name is Julianne and I will be your conference operator today. At this time, I would like to welcome everyone to Resolute Forest Products, fourth quarter 2021 earnings release call. At this time, all participants are in a listen only mode. After the speakers remarks, there will be a question and answer session. I would now like to turn the call over to Mariana Nemoge, treasurer and vice president of investor relations. Please go ahead.

At this time all participants are in a listen only mode. After the Speakers' remarks, there'll be a question and answer session I would now like to turn the call over to Marianne emotion Treasurer, and Vice President of Investor Relations. Please go ahead.

Speaker 2: Thank you, Julian. Good morning and welcome to Resolute Fourth Quarter earning call. Today we'll hear from Remi Lalonde, President and Chief Executive Officer and Sylvain Gérard, 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 presentation and webcast page under the investor relations section of our website. And you can download the slides.

Thank you Julien good morning, and welcome to Resolute fourth quarter earnings call today, we'll hear from Emil alone President and Chief Executive Officer, and Sylvain <unk> Senior Vice President and Chief Financial Officer, you can follow along with the slides for today's presentation by logging onto the webcast using the link in the presentation in the west.

Page under the Investor Relations section of our website and you can download the slides.

Speaker 2: Today's presentation will include non-US GAAP financial information. Our press release and the appendix to the slides include a reconciliation of non-GAAP information to US GAAP financial measures.

Today's presentation will include non U S GAAP financial information, our press release and the appendix to the slides include a reconciliation of non-GAAP information to U S GAAP financial measures.

Speaker 2: 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 two of today's presentation. I will turn the call over to Remi.

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 two of todays presentation I will.

Turn the call over to him.

Speaker 3: Thank you, Marianne. Good morning and thank you for joining us. We just finished an exceptional year in which we generated $921 million of adjusted EBITDA, allowing us to reduce debt, invest in our business, and return cash to shareholders.

Thank you Maria and good morning, and thank you for joining US. We just finished an exceptional year in which we generated $921 million of adjusted EBITDA, allowing us to reduce debt invest in our business and return cash to shareholders at $583 million better than 2020 the improvement.

Speaker 3: At $583 million better than 2020, the improvement reflects record market prices in wood products and higher prices in pulp and paper, offset by higher manufacturing costs, including fiber and the impact of the stronger Canadian dollar.

Next record market prices in wood products and higher prices in pulp and paper offset by higher manufacturing costs, including fiber and the impact of the stronger Canadian dollar.

Speaker 3: Rising interest rates help to reduce our net pension and other post-retirement benefit deficit by over $400 million this year, further strengthening our balance sheet and credit profile.

<unk> interest rates helped to reduce our net pension and other post retirement benefit deficit by over $400 million. This year further strengthening our balance sheet and credit profile.

Speaker 3: For the quarter, we reported $111 million of adjusted EBITDA compared to $144 million in the third quarter. Our fourth quarter results reflect higher realized prices in most of our segments, especially wood products, but also cost pressures across the business.

For the quarter, we reported $111 million of adjusted EBITDA compared to 144 in the third quarter, our fourth quarter results reflect higher realized prices in most of our segments, especially wood products, but also cost pressures across the business.

Speaker 3: By segment, we reported adjusted EBITDA of $92 million for wood products, up by $17 million. $25 million in market pulp, down by $27. And negative $1 million for tissue, up by $3. And $12 million for paper, down by $9.

By segment, we reported adjusted adjusted EBITDA of $92 million for wood products up by 17 million 25 million in wood in market pulp down by 27% and negative $1 million for tissue up by three and $12 million for paper down by.

19.

Speaker 3: As the Omicron wave passes, the weather softens, and knots in the logistics system loosen, we should see a recalibration toward a more normal business environment.

As the Omicron wave passes the weather softens and knott's in the logistics system loosen, we should see a recalibration toward a more normal business environment.

Speaker 3: It could, however, take several months, especially for the transportation network, and it is unclear how much of the input cost inflation will remain.

However, take several months, especially for the transportation network and it is unclear how much of the input cost inflation will remain.

Speaker 3: In the case of pulp and paper in particular, we anticipate that pricing improvements will mitigate some of these effects.

In the case of pulp and paper in particular, we anticipate that pricing improvements will mitigate some of these effects.

Speaker 3: Let's review quarterly performance by segment, beginning with wood products.

Let's review quarterly performance by segment, beginning with wood products.

Speaker 3: Fourth quarter U.S. housing starts averaged 1.6 million on a seasonally adjusted annual basis, up by 5% compared to the previous quarter, and 4% against the same period last year.

Fourth quarter U S housing starts averaged $1 6 million on a seasonally adjusted annual basis up by 5% compared to the previous quarter and 4% against the same period last year.

Speaker 3: After coming off the 2021 peak and trapping at above trend levels early in the fourth quarter, benchmark prices increased toward the end of the year, driven by strong demand from the repair and remodeling sector and supportive market fundamentals.

After coming off the 2021 peak and trough ing at above trend levels early in the fourth quarter.

Benchmark prices increased towards the end of the year driven by strong demand from the repair and remodeling sector and supportive market fundamentals.

Speaker 3: As a result, our average transaction price rose by $39 per 1000 board feet compared to the third quarter to $612.

As a result, our average transaction price rose by $39 per thousand board feet compared to the third quarter to $612.

Shipments rose by 28 million board feet during the quarter, mostly reflecting better productivity.

Speaker 3: Shipment rose by 28 million board feet during the quarter, mostly reflecting better product.

Speaker 3: In the year, we improved shipments by 74 million board fees, including the additional volume of operations at the restarted El Dorado and Ignace-Salmon.

In the year, we improved shipments by 74 million board feet, including the additional volume of operations at the restart at El Dorado and Ignatius saw mills.

Speaker 3: Although we're seeing supply chain delays and tight contractor availability, we continue to make good progress with the $50 million of organic growth projects we announced last summer.

Although we're seeing supply chain delays and tight contractor availability, we continue to make good progress with the $50 million of organic growth projects, we announced last summer.

Speaker 3: The projects were designed to generate additional value from the wood products segment across market cycles by improving efficiency and productivity and adding about 60 million board feet of run rate capacity at completion.

The projects were designed to generate additional value from the wood product segment across market cycles by improving efficiency and productivity and adding about 60 million board feet of run rate capacity at completion.

Speaker 3: We expect to complete most of the work by the end of 2022.

We expect to complete most of the work by the end of 2022.

Speaker 3: With benchmark lumber prices starting the year strong, we expect that the combination of encouraging underlying fundamentals, higher cost structures, and higher softwood lumber duty rates will contribute to above trend prices for some time.

With benchmark lumber prices, starting the year strong we expect that the combination of encouraging underlying fundamentals higher cost structures and higher softwood lumber duty rates will contribute to above trend prices for some time.

Global demand for chemical market pulp in 2021 fell by 3% through November compared to 2020 with demand for hardwood and softwood falling around 4% each.

Speaker 3: Global demand for chemical market pulp in 2021 fell by 3% through November compared to 2020, with demand for hardwood and softwood falling around 4%.

Speaker 3: This mostly reflects a drop in demand in China, down by 9% through November , partly as a result of destocking and energy-related end-user downtime, as well as global logistics.

This mostly reflects a drop in demand in China down by 9% through November partly as a result of Destocking and energy related end user downtime as well as global logistics issues.

Speaker 3: Our average transaction price in the quarter slipped by $20 per metric.

Our average transaction price in the quarter slipped by $20 per metric ton shipments fell by 29000 metric tons as a result of limited rail and truck availability and lower productivity, mostly at the Calhoun mill.

Speaker 3: Shipments fell by 29,000 metric tons as a result of limited rail and truck availability and lower productivity mostly at the Calhoun Nell.

Finished goods inventory was 59000 metric tons at year end up by 7000 metric tons due to logistics challenges.

Speaker 3: Finished goods inventory was 59,000 metric tons at year end, up by 7,000 metric tons due to logistics challenges.

Speaker 3: Epidaw and the Pulp Segment was $25 million for the quarter, including a loss of $4 million at Calhoun.

EBITDA in the pulp segment was $25 million for the quarter, including a loss of $4 million at Calhoun.

Speaker 3: Looking forward, we expect realized transaction prices to improve in the first quarter, largely due to the limited availability of supply.

Looking forward, we expect realized transaction prices to improve in the first quarter largely due to the limited availability of supply.

Speaker 3: Through November , US at-home tissue demand fell by 8% compared to 2020 as a result of consumer inventory rebalance.

Through November use at home tissue demand fell by 8% compared to 2020 as a result of consumer inventory rebalancing.

Speaker 3: Demand in the away from home market improved by 5%, but it is still well below pre-pandemic levels.

Demand in the away from home market improved by 5%, but it is still well below pre pandemic levels.

Speaker 3: We faced headwinds in 2021, including $6 million for accumulated market downtime due to lower demand and pandemic-related logistics and labor challenges.

We faced headwinds in 2021, including $6 million for accumulated market downtime due to lower demand and pandemic related logistics and labor challenges.

Speaker 3: $6 million associated with the ramp up of our Hagerstown Converting Facility and $5 million for a pro...

$6 million associated with the ramp up of our Hagerstown converting facility.

And $5 million for process improvement program.

Speaker 3: In the fourth quarter, our realized transaction price improved by $160 per short ton or 9% due to better products.

In the fourth quarter, our realized transaction price improved by 160 to $68 per short ton or 9% due to better product mix or.

Speaker 3: Our shipments also rose by a thousand short tons on better market conditions. We expect the retail market to continue its recovery and the away from home market to remains luggage for some time.

Our shipments also rose by 1000 short tons on better market conditions.

We expect the retail market to continue its recovery and the away from home market to remain sluggish for some time.

Speaker 3: following the indefinite idling of pulp and paper operations at Calhoun. And as markets continue to stabilize in tissue, we are reviewing strategic options for the

Following the indefinite idling of pulp and paper operations at Calhoun and as markets continue to stabilize and tissue. We are reviewing strategic options for the business.

Speaker 3: The secular demand decline for North American newsprint continued in 2021 down by 7%. But I'm coded mechanical demand increase by 5.

The secular demand decline for North American newsprint continued in 2021 down by 7%, but uncoated mechanical demand increased by 5%.

Speaker 3: Due to industry capacity adjustments, the shipment to capacity ratio for North American newsprint increased to 93% compared to 84% last year, and uncoated mechanical paper increased to 87 from 74 in 2020.

Due to industry capacity adjustments the shipment to capacity ratio for North American newsprint increased to 93% compared to 84% last year and uncoated mechanical paper increased to 87% from 74 in 2021.

Speaker 3: The average transaction price rose by $29 per metric ton, or 4%, compared to Q4, with increases in all grades.

The average transaction price rose by $29 per metric ton or 4% compared to Q4 with increases in all rates with.

With shipments slipped by 10000 metric tons and inventory rose as a result of limited rail and truck availability.

Speaker 3: Shipments slipped by 10,000 metric tons and inventory rows as the result of limited rail and truck available.

Speaker 3: EBITDA in the paper segment was $12 million for the quarter, including a loss of $11 million at Cal

EBITDA in the paper segment was $12 million for the quarter, including a loss of $11 million at Calhoun.

Yes.

Speaker 3: The higher operating rates and the price recovery in printing and writing paper markets, which should continue, support our cash generation strategy for the segment. I will now ask Sylvain to please review our...

The higher operating rates and the price recovery in printing and writing paper markets, which should continue support our cash generation strategy for this segment.

I will now ask Sylvain to please review our financial performance.

Speaker 3: Thank you, Remy. We reported net income of $37 million in the Fort Quarter, or $0.48 per share, excluding specialized.

Jamie.

We reported net income of $37 million in the fourth quarter or <unk> 48 per share excluding special items.

Speaker 3: This compares to net income excluding special items of $67 million or 84 cents per share in the previous quarter.

This compares to net income excluding special items of $67 million or <unk> 84 per share in the previous quarter.

Speaker 3: and a net income excluding special items of $45 million or $55 cents per share in the same period last year.

And the net income excluding special items of $45 million or <unk> 55 per share in the same period last year.

Speaker 4: Special items in the Fort Quarter are almost all related to the $158 million of non-cash charges with the indifinate idling of the Calhoun mill, including a hundred...

Special items in the fourth quarter and almost are almost all related to the $158 million of noncash charges.

With the indefinite idling of the Calhoun mill include.

Including $124 million for impairment.

Speaker 4: $34 million in inventory write-down and other asset write-offs, as well as $13 million in accruals for cash closure costs.

And $34 million and inventory write down and other asset write offs as well as $13 million in accruals for cash closure costs.

Speaker 4: In 2022, we anticipate disbursements of approximately $45 million related to the Kalim pulp and paper cash closure costs, including the $13 million accrued in Q4.

In 2022, we anticipate disbursements of approximately $45 million related to the <unk> pulp and paper cash closure costs, including the 13 million accrued in Q4.

Speaker 4: Special items also include $7 million of equity income, mostly from our IJoyce partnership in the Ford quarter.

Special items also include $7 million of equity income, mostly from our I joist partnership in the fourth quarter.

Total sales in Q4 were $834 million up by $17 million compared to the third quarter, reflecting higher realized prices for wood products paper and tissue.

Speaker 4: Total sales in Q4 were $834 million, up by $17 million, compared to the third quarter, reflecting higher realized prices for wood products, paper, and tissue, along with higher shipments of wood products.

Along with higher shipments of wood products.

Manufacturing cost rose by $44 million due to higher energy prices lower internal power generation and higher other input costs.

Speaker 4: Manufacturing costs rose by $44 million due to higher energy prices, lower internal power generation, and higher other input costs.

Speaker 4: We also recorded higher freight costs and higher S-GNA due to share-based compensation preparation.

We also recorded higher freight costs and higher SG&A due to share based compensation provision.

Compared to the previous quarter. The all in delivered cost for the wood product segment rose by $14 per thousand board feet or 3%.

Speaker 4: Compared to the previous quarter, the all-in delivered cost for the wood product segment rose by $14 per thousand board seat or at 3%.

Speaker 4: mainly due to higher maintenance as well as staffing and labor expenses.

Mainly due to higher maintenance as well as staffing and labor expenses.

Speaker 4: A bit down in the segment, improved by $17 million to 92 million.

EBITDA in this segment improved by $17 million to $92 million.

Speaker 4: The delivered cost for market fault rolls by $67 per metric ton or 10%.

The delivered cost for market pulp rose by $67 per metric ton or 10%.

Speaker 4: reflecting higher fiber and energy cost, as well as lower internal power generation, as a result of a turbine failure, at the same field the same yield. Ebidda in a second.

Reflecting higher fiber and energy costs as well as lower internal power generation as a result of a turbine failure at the Saint <unk> mill.

EBITDA in this segment was $25 million.

We do not expect the turbine to come back online until the end of Q2.

Speaker 4: We do not expect the turbine to come back online until the end of Q2.

Speaker 4: including any potential insurance recovery, this represents approximately $13 million of loss contribution and additional cost in the first half of 2020.

Excluding any potential insurance insurance recovery. This represents approximately $13 million of lost contribution and additional costs in the first half of 2022.

Okay.

Speaker 4: The delivered cost and tissue increased by $37 per short ton or 2%. Parts.

The delivered cost in tissue increased by $37 per short ton or 2%.

Partly due to higher freight costs.

Speaker 4: If it does for this segment, improve by $3 million to negative $1 million.

EBITDA for this segment improved by $3 million to negative $1 million.

Papers delivered costs increased by $78 per metric ton or 12%.

Speaker 4: Papers delivered cost increased by $78 per metric ton, or 12%.

Speaker 4: Due to higher energy prices and unfavorable maintenance and fiber costs, as well as lower internal power generation, to do the low due to the low water levels at Idro-Segney. EBITDAF

Due to higher energy prices and unfavorable maintenance and fiber costs as well as lower internal power generation to do the low due to the low water levels at <unk>.

EBITDA for this segment was $12 million.

Speaker 4: 2021, Calu negatively impacted our segment Ibbidza by $36 million in paper and 17 million in Paul.

In 2021, kilo negatively impacted our segment EBITDA by $36 million in paper and $17 million in pulp.

Speaker 4: We anticipate an improvement in overall run rate EBITDA of approximately $25 to $30 million as a result of the indefinite idling of pulp and paper operations at Kahloun, once fully completed.

We anticipate an improvement in overall run rate EBITDA of approximately $25 million to $30 million as a result of the indefinite idling of pulp and paper operations at Calhoun once fully completed.

Speaker 4: This reflects approximately $15 million in loss integration benefit in the tissue segment and approximately $5 million for ongoing costs associated with closed site.

This reflects approximately $15 million in Las integration benefit and the tissue segment and approximately $5 million for ongoing costs associated with closed site maintenance.

Speaker 4: We generated $68 million of cash from operating activities in the fourth quarter, and $648 million for the...

We generated $68 million of cash from operating activities in the fourth quarter and $648 million for the year.

Speaker 4: Our cash position closed at $112 million that year end with liquidity at $953 million and net debt at $190 million.

Our cash position closed at $112 million at year end with liquidity at $953 million and net debt at $190 million.

Speaker 4: We repurchase 1.3 million shares of our common stock in the quarter.

We repurchased one 3 million shares of our common stock in the quarter.

Speaker 4: For the year, we spent $48 million to repurchase 4.6 million shares, or 6% of the total outstanding

For the year, we spent $48 million to repurchase $4 6 million shares or 6% of the total outstanding.

Yeah.

Speaker 4: After repurchasing 15% of our outstanding shares in exhausting the program we launched in March of 2020, we announced a new program to repurchase up to $100 million or 10 million of our common shares, whichever it comes.

After repurchasing 15% of our outstanding shares and exhausting the program, we launched in March of 2020.

We announced a new program to repurchase up to $100 million.

Or $10 million of our common shares whichever comes first.

Speaker 4: In Q4, we announced the refinancing of our ABL credit facility.

In Q4, we announced the refinancing of our ABL credit facility, extending the maturity to December 2026th and improving key terms and conditions.

Speaker 4: extending the maturity through December 20th, 2026 and improving key terms and conditions.

Speaker 4: The facility includes an ESG module with targets to be agreed upon which will affect price.

The facility includes an ESG module with targets to be able to be agreed upon which will affect pricing.

Speaker 4: We're among the first companies in our industry to have an ESG component in our financing agreement.

We're among the first companies in our industry to have an ESG component in our financing agreements.

We made a $112 million and net capital expenditures in the year for.

Speaker 4: We made $112 million in net capital expenditures in the

Speaker 4: For 2022, we expect net capital investments of approximately $130 million, including the lumber projects mentioned earlier by him.

For 2022, we expect net capital investments of approximately $130 million, including the Lumpier projects mentioned earlier by Amy.

Okay.

Speaker 4: We made deposits of $26 million for softwood lumber duties in the quarter.

We made deposits of $26 million for softwood lumber duties in the quarter.

Speaker 4: bringing our total deposits to $397 million. This is recorded in other apps.

Bringing our total deposits of $397 million.

This is recorded in other assets on the balance sheet.

Speaker 4: During the fourth quarter, we contributed $22 million to pension plans and made OPEB payments of $3 million.

During the fourth quarter, we contributed $22 million to pension plans and made OPEC payments of $3 million.

Speaker 4: We made $104 million of pension contributions in all of 2021 and $11 million of OPEP payments.

We made a $104 million of pension contributions and all of 2021 and $11 million of OPEC payments.

Speaker 4: Our balance sheet net pension and OPEB liability fell by $411 million from 2020 year end to below $1.2 billion due to an increase in the applicable U.S. gap discount rate and strong investment returns, partly offset by a strong

Our balance sheet net pension and <unk> liability fell by $411 million from 2020 year end to below $1 2 billion.

Due to an increase in the applicable U S GAAP discount rate and strong investment returns.

Partly offset by a stronger Canadian dollar.

Okay.

Speaker 4: For the same reasons, our gross funding deficit now stands at $464 million at year-end, an improvement of $193 million compared to last year.

For the same reasons, our gross funding deficit now stands at $464 million at year end, an improvement of $193 million compared to last year.

Speaker 4: Accordingly, we expect pension contribution to fall by roughly $9 million in 2022 to approximately $95 million, plus $11 million of OPEB. I'll now pass it back to Remy.

Accordingly, we expect pension contributions to fall by roughly $9 million in 2022 to approximately $95 million.

Plus $11 million of OPEC I'll now pass it back to Amy.

Speaker 3: Thank you, Sudeep. Looking back on 2021, I'm particularly proud of our employees for raising the bar and setting a new standard for safety performance with an annual OSHA incident rate of 0.47.

Thank you so.

Looking back on 2021, I'm, particularly proud of our employees for raising the bar and setting a new standard for safety performance with an annual Osha incident rate of <unk> $4 seven.

Speaker 3: Our long-term ambition is to continue to improve until we reach zero injury, but this is an impressive success along the way, despite the pandemic and other challenges, and I wholeheartedly applaud our employees for our collective achievement.

Our long term ambition is to continue to improve until we reach zero injury, but this is an impressive success along the way despite the pandemic and other challenges and I wholeheartedly applaud our employees for our collective achievement in.

Speaker 3: In addition to receiving a score of A- from CDP for our forest disclosures, the highest granted in this category for North American-based forest products companies, I'm pleased to report that we recently made a commitment to build on our existing GHG reduction target by setting one in line with the Science-Based Targets Initiative.

In addition to receiving a score of a minus from CDP for our forests disclosures the highest granted in this category for North American based forest products companies I'm pleased to report that we recently made a commitment to build on our existing <unk> reduction target by selling one in line with the science based.

<unk> targets initiative.

This concludes our formal presentation.

Speaker 2: This concludes our formal presentation. Operator will now open the call for questions.

Operator, we will now open the call for questions.

Speaker 1: Thank you. If you would like to ask a question, please press star followed by the number one on your telephone keypad.

Thank you if you would like to ask a question. Please press star followed by the number one on your telephone keypad.

Speaker 1: Your first question will come from Hameer Patel from CIBC Capital Markets. Please go ahead. Your line is open.

Your first question will come from Samir Patel from CIBC capital markets. Please go ahead. Your line is open.

Hi, good morning.

Speaker 5: Remy, you mentioned you're reviewing strategic options for the tissue segment. Could you just give us a sense as to...

You mentioned Youre reviewing strategic options for the for the tissue segment could you just give us a sense as to.

Speaker 5: you know, how far along you are in that process and when you'd expect it to conclude.

How far along you are in that process and when you would expect it to conclude.

Speaker 3: Yeah, good morning, Camir. Thanks for the question. So, I mean, at the end of the day, we've received a number of inquiries after our decision to indefinitely idle pulp and paper operations at Calhoun. So what we thought was it would be important to share our perspective with investors a little bit.

Yes, good morning, Sameer. Thanks, Thanks for the question. So I mean at the end of the day, we've received a number of inquiries after our decision to indefinitely idle a pulp and paper operations at Calhoun. So what we thought was it would be important to share our perspective with investors a little bit.

Speaker 3: My own view is that the private label market in North America needs some consolidation.

My own view is that the private label market in North America need some consolidation.

Speaker 3: I think the business rationale for resolute and tissue to downstream integrate still makes some sense.

I think the business rationale for resolute and tissue to downstream integrate still makes some sense, but we have struggled with with execution. So where we sit now is where we're kind of at a crossroads with the business, having now idled pulp and paper operations at Calhoun and the question is exactly what role we can play in the future.

Speaker 3: but we have struggled with with execution. So where we sit now is where we're kind of at a crossroads with the business having now idled pulp and paper operations account.

Speaker 3: And the question is exactly what role we can play in the future with the tissue business. So I don't know what the answer is, Humeer, but I know we have to ask ourselves the question.

Sure with the tissue business. So I don't know what the answer is Amir, but I know we have to ask ourselves the question.

Yes.

Speaker 5: Fair enough, but when we just took me up pricing across the business, I know there's been a lot of paper and pulp increases announced in recent months. Can you help us gauge, you know, versus what was already reflected in Q4 and just given the lag and realizations in the wood products business? Based on pricing that has been announced today, you know, how much pricing upside across the business? Would you see going into Q1 versus Q4?

Fair enough.

Just looking at pricing across the business I know, there's been a lot of.

Paper and pulp increases announced in recent months can you help us gauge versus what was already reflected in Q4 and just given the lag in realizations in the wood products business.

Based on pricing that has been announced to date, how much pricing upside across the business would you see going into Q1 versus Q4.

Speaker 3: As far as the wood products business goes, Hamir, and you're right, I mean it is a bit of a volatile environment.

As far as the wood products business goes from here and Youre right I mean, it is a bit of a volatile environment.

Speaker 3: with the COVID wave logistics constraints and the cold weather. You know, we think there's an uptick in Q1 just based on the on the order book. That is interesting. As far as the other businesses go, as I mentioned, there is some momentum, especially in paper and also a bit of an uptick in pulp that we're expecting to.

With the Covid wave logistics constraints and in the cold weather.

We think there is an uptick in Q1, just based on the on the order book.

That is that is.

Interesting.

As far as the other businesses go as I mentioned, there is some some momentum, especially in paper and also a bit of an uptick in pulp that we're that we're expecting to.

Yes.

Speaker 5: Great. Thanks, Rumi. That's all I had. I'll turn it over.

Okay, great. Thanks.

It's all I had I'll turn it over.

Okay.

Again, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad your.

Speaker 1: Again, if you'd like to ask a question, please press star followed by the number one on your telephone keypad.

Speaker 1: Your next question comes from Sean Stewart from TD Securities. Please go ahead. Your line is open.

Your next question comes from Sean Stewart from TD Securities. Please go ahead. Your line is open.

Speaker 6: Thank you. Good morning, everyone.

Thank you good morning, everyone.

Good morning.

Wanted to just.

Speaker 6: I want to just make sure I heard the numbers correctly with respect to the Calhoun.

Just make sure I heard the numbers correctly with respect to the Calhoun.

Speaker 3: drag on earnings this quarter. I think you said it was an 11 million dollar headwind for paper. If you mentioned it for pulp, I missed it. Do you have that number for the pulp segment as well? Yeah, that's right Sean. So it's 11 million dollars for paper and 4 million dollars for pulp for a total of 50 million in the quarter and 53 million in the year. Got it.

Drag on earnings this quarter I think you said it was an $11 million headwind for paper.

You mentioned it for Paul if I missed it do you have that number for the pulp segment as yet.

That's right John So it's $11 million for paper and $4 million for fall for a total of $58 million in the quarter and $53 million in the year.

Got it.

Thanks for that and then.

Speaker 6: Can you give us a sense of losing the integration for tissue? What's the counter for that segment?

Can you give us a sense as losing the integration for tissue, what's the what's the counter for that that segment.

In terms of an earnings impact.

While we expect that for the whole business.

Speaker 3: Well, we expect that for the whole business, the step up in EBITDA will be about $25.30 million. So there is a $15 million loss.

Step up in EBITDA will be about $25 million to $30 million. So there is a 15 million dollar loss.

Speaker 3: as a result of the integration benefit that we won't have anymore. Essentially the conclusion is that we were not able to improve operations of pulp and paper enough.

As a result of the integration benefit that we won't we won't have any more.

Essentially the conclusion is that we were not able to improve operations of pulp and paper enough.

Speaker 3: to continue to sustain the losses in pulp and paper in order to deliver that integration benefit. So we're going to lose the integration benefit, but we're eliminating the risk of continued losses in pulp and paper, which as we said for 2021 was $53 million. So when you add all that up, that's how we get to the plus $25 to $30 million. Okay, thanks for that.

<unk> continue to sustain the losses in pulp and paper in order to deliver that integration benefit.

So were going to were to lose the integration benefit, but we're eliminating the risk of continued losses in pulp and paper, which as we said for 2021 was $53 million. So when you add all that up that's how we get to the plus $25 million to $30 million.

Okay.

For that.

Question on cost inflation.

I think the wording you used was you expect pulp and paper price increases and presumably higher average lumber prices to mitigate.

Speaker 6: The wording you used was you expect all from paper price increases and presumably higher average lumber prices to mitigate the cost pressure you're seeing early in the year. Can you give us a sense of how some of those

The cost pressure youre seeing early in the year can you give us a sense of how some of those specific cost items are trending early in the year versus what you might have seen in the fourth quarter.

Speaker 6: Early in the year versus what you might have seen in the fourth quarter, any acceleration, deceleration depending on the bucket, any context you can get there.

Any acceleration deceleration depending on the bucket any contacts you can get there, yes, no fair enough and maybe what I'll do Sean just to set the context I mean, the cost inflation in the quarter was was a big number was $62 million when you Peel it back there was <unk>.

Speaker 3: Yeah, no fair enough. Maybe what I'll do Sean, just to set the context. I mean the cost inflation in the quarter was a big number. It was 62 million dollars. When you peel it back, there was 12 million dollars of that that is the mark to market of variable compensation. So that's strictly a function of the higher stock price. So that's 12 million dollars for that.

$12 million of that that is the mark to market of variable compensation, so that strictly a function of the higher stock price. So thats $12 million for that there is $11 million for lower internal power generation, which is.

Speaker 3: $11 million for lower internal power generation, which is the unfortunate incident with the turbine in Saint-Ficien and low water levels at HydroSagonay.

The unfortunate incident with a turbine in safety and low water levels at hydro Saguenay.

Speaker 3: And then there was market-wide inflation for energy prices. It was $12 million. And then also freight, fiber labor and maintenance. So it's kind of across the board. What we see heading into the first quarter, the price of natural gas, which is what drives most of our higher costs around energy, has been trending lower. And so that's a favorable for us.

And then there was market wide inflation for <unk>.

Energy prices is $12 million and then also freight fiber labor and maintenance. So it's kind of across the board what we see heading into the first quarter.

The price of natural gas, which is what drives most of our higher costs around energy has been trending lower.

So thats a favorable for us.

Speaker 3: as far as everything else, you know, freight, you know, I think we're kind of in the peak of the freight challenges right now and we're hoping, as I mentioned, that that will start to loosen up in the next couple weeks.

As far as everything else freight.

I think we're kind of in the peak of the freight challenges right now and we're hoping as I mentioned that that will start to loosen up in the next couple of weeks.

Speaker 3: But that's kind of hard to gauge. So I'm expecting lower energy prices in the first quarter But we're going to pay more for freight.

But that's kind of hard to gauge so I am expecting lower energy prices in the first quarter.

But we're going to pay more for for freight.

Speaker 3: And then labor is just an ongoing challenge. As I was saying, there's a shortage of workers. The pandemic is also taking its toll in terms of labor availability.

And then labor is just an ongoing challenge is obviously there is a shortage of workers. The pandemic is also taking its toll in terms of labor labor availability.

Speaker 3: So I think quarter over quarter our costs should come down and prices should come up, but the order of magnitude is a bit hard to gauge.

So I think quarter over quarter, our costs should come down.

And prices should come up but the order of magnitude is a bit hard to gauge.

Speaker 3: You probably have a better crystal ball than I do as far as the prices of natural gas.

You probably have a better crystal ball than I do as far as the prices of natural gas.

Speaker 6: I don't know about that, but I appreciate the context. That's all I have. Thanks everyone.

I don't know about that but I appreciate the context, that's all I have thanks, everyone.

Sean.

Your next question comes from Paul Quinn from RBC Capital markets. Please go ahead. Your line is open.

Speaker 1: Your next question comes from Paul Quinn from RBC Capital Markets. Please go ahead, your line is open.

Speaker 7: Yeah, thanks a lot. Good morning. We're opening.

Yes, Thanks a lot.

Good morning.

Offering.

Speaker 7: Jumping around a bit with other calls, but just trying to understand this, Stan Feliciena, turbine issue. When did the turbine go down? What's your insurance on that? And I think he said you expect it to come up at the end of Q2 with a $13 million headwind in the first half of the year.

Hey, jumping around a bit with other calls but.

Just trying to understand this.

<unk> turbine issue when you deduct turbine go down.

Whats your insurance on that.

Thank you said you expect it to come up at the end of Q2 with.

$13 million headwind in the first half of the year is that right.

Speaker 3: Yeah, so just on the operational, so it went down late in the third quarter as we were preparing for our annual outage. There was an issue with the logic as we were spooling it down into the outage and it ran itself into reverse.

Yes so.

Just on the operational so it went down.

Late in the third quarter as we were preparing for our annual outage. There was an issue with the logic as we we're spooling it down into the outage and it ran itself into reverse.

Speaker 3: and by doing that it damaged some of the rotor blades.

And by doing that it damaged some of the rotor blades and the rotor blades as you might imagine are highly tuned machined high grade steel and so we're in the process of working with the manufacturer to forge new blades, but.

Speaker 3: and the rotor blades, as you might imagine, are highly tuned, machined, high grade steel. And so we're in the process of working with the manufacturer to forge new blades.

Speaker 4: But maybe I'll let someone speak to the insurance component. Yeah, so so basically we have There's different deductibles and and and caps that apply to this. There's obviously cost reimbursement which

But maybe I'll, let <unk> speak to the insurance component, yes. So so basically we have.

Theres different deductibles and caps that apply to this there's obviously cost reimbursement, which which.

Speaker 4: should be fine, but as far as the business interruption, we won't recover the entire amounts, but when we have lost revenue.

Which should be fine, but as far as the business interruption, we won't recover.

The entire amounts, but when we of loss revenue so to speak.

Speaker 4: So we're working with the insurers at the moment. When you look at 2022, you know, we should recover a decent amount of what's happening in 2022 because we've already lost some in 2021 that will cover part of the deductibles we have. So that's where we're heading. It's too early to give a number on that, how much we'll be able to offset the 13 million, but we should get some some recoveries.

So we're working with the insurers at the moment.

When you look at 2022.

We should recover a decent amount of what's happening in 2022, because we've already lost some in 2021 that will cover part of the deductibles. We have so that's where we're heading it's too early to give a number on that how much we'll be able to offset the $13 million, but but we should get.

Some recoveries for sure.

Speaker 7: Okay, and then just over on wood products, I mean, you guys are currently paying the highest duties, you know, if any Canadian company, almost at 30%, and AR3 came out, and it comes down to 20%, anyway that you guys can reduce that further. And...

Okay, and then just over on wood products. I mean, you guys are currently paying the highest duties of any Canadian company at 30%.

<unk> came out and it comes down at 20% any way that you guys can.

Reduce that further in subsequent reviews.

Well I guess its worthy of comment Paul.

Speaker 3: Well, I guess it's worthy of comment, Paul. The reason that we're higher than everybody else is because the Department of Commerce is delaying the implementation of a favorable ruling that Canada received at the WTO in August of 2020, in which the WTO ruled that the Department of Commerce's interpretation of its rules as far as Quebec's market-based system goes was inconsistent with its international obligations. So we're bearing the burden effectively of that particular decision. What we can do about it is either ship less to the US more in Canada, which is a smaller market. So that's a business decision that we follow on a day-to-day basis.

The reason that were higher than everybody else is because the department of Commerce is delaying the implementation of a favorable ruling that Canada received at the WTO in August of 2020.

In which the WTO ruled that the comp the department of Commerce's interpretation of its rules as far as Quebec market based system goes was was inconsistent with its international obligations. So we're bearing the burden effectively of that particular decision.

What we can do about it.

Either ship less to the U S more in Canada, which is a smaller market. So so thats a business decision that we follow on a day to day basis.

Speaker 3: Otherwise, it's about working with the industry and with government on the litigation angle. As you know, there's...

Otherwise it's about working.

With the industry and with government on the litigation angle as you know there is a set of panels coming up in a couple of months under the new NAFTA.

Speaker 3: set of panels coming up in a couple months under the new NAFTA.

Speaker 3: And then just otherwise trying to participate in discussions and trying to generate some political will so that we can see this issue put behind us.

And then just otherwise trying to participate in discussions and trying to generate some political will.

So that we can see this this issue put behind us.

Speaker 8: Okay, thanks for that. And just over on pulp, you know, through the fall, we saw prices decreasing and then...

Okay.

Thanks for that and just just over on pulp.

Through the fall, we saw prices decreasing and then.

Speaker 8: And obviously some issues on weather and supply concerns, you know, sort of led to reversal. Just wondering how you look at.

Obviously, some some issues on weather.

Supply concerns.

Led to reverse so just wondering how you look at.

Speaker 8: Pope markets right now and have sustainable this recent rally in Pope rights.

Pulp markets right now and how sustainable is this recent.

Rally in oil prices.

Yes, no. So so you're right in what we were saying Paul in the third and fourth quarter was.

Speaker 3: Yeah, no, so you're right. And what we were saying, Paul, in the third and fourth quarter was, you know, end user downtime in China and destocking was putting downward pressure on prices.

End user downtime in China, and Destocking was putting downward pressure on prices.

Speaker 3: And then that has, as you point out, shifted a little bit. So what we're seeing looking ahead of us, Paul, is that prices should come up.

And then that has as you point out shifted a little bit. So what we're seeing looking ahead of us Paul is that prices should come up.

Speaker 3: in Q1, largely as a result of supply availability. We know of a couple of producers who've reported supply disruptions on operational issues. We know there's a global logistics challenge. There's been some local issues, including BC floods that has slowed some things back. We've heard of also delayed capacity additions out of Latin America. and then other companies who were just, unfortunately, shutting down as a result of labor discussions. So all that is essentially limiting the availability of supply.

And in Q1, largely as a result of <unk>.

Supply availability.

We know of a couple of producers who've reported supply disruptions on operational issues.

No there is a global logistics.

The challenge.

There has been some local issues, including BC floods that has slowed some things back. We've heard are also delayed capacity additions out of Latin America, and then other companies who are just unfortunately shutting down as a result of labor discussions. So all of that is essentially limiting the availability of <unk>.

Supply.

And demand remains I think I think encouraging so the end of the day, it's going to depend at what pace. These factors come together. So it's hard to see what we see in the short term, though is is an uptick here in the first quarter.

But it's important to point out that for the long term.

We're very confident with the bulk of assets that we have especially around Canadian softwood and we're very confident that there is always going to be a need for high quality softwood pulp.

Okay.

Speaker 7: Ready? That's all I had, best luck. Thanks. Thanks, Paul.

Alright, Thats all I had best of luck. Thanks.

Thanks, Paul Thank you.

Speaker 1: We have no further questions in queue. Maryanne Limotge, I turn the call back over to you.

We have no further questions in queue Mahan Nemo as I turn the call back over to you.

Speaker 9: to you. Yes, thank you. So thank you everyone for joining us today and we look forward to talking to you in the next quarter. Have a great day. Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Speaker 2: Yes, thank you. Thank you everyone for joining us today and we look forward to talking to you in the next quarter. Have a great day.

Yes. Thank you. Thank you everyone for joining us today, and we look forward to talking to you in the next quarter have a great day.

Speaker 1: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Ladies and gentlemen. This concludes today's conference call you may now disconnect.

Yes.

Yes.

Yes.

Okay.

Speaker 10: The host has ended this call. Goodbye. The animator has recroached. To re-watch.

The host has ended this.

Call Goodbye.

A question.