Cascades' (CADNF) CEO Mario Plourde on Q3 2016 Results - Earnings Call Transcript

| About: Cascades Inc. (CADNF)

Cascades Inc. (OTCPK:CADNF) Q3 2016 Earnings Conference Call November 11, 2016 10:00 AM ET

Executives

Jennifer Egan - Director of Investor Relations

Mario Plourde - President and Chief Executive Officer

Allan Hogg - Vice-President and Chief Financial Officer

Charles Malo - President and Chief Operating Officer, Cascades Containerboard Packaging

Luc Langevin - President and Chief Operating Officer, Cascades Specialty Products Group

Jean Jobin - President and Chief Operating Officer, Cascades Tissue Group

Analysts

Hamir Patel - CIBC Capital

Sean Steuart - TD Securities

Bill Garnett - Scotiabank

Paul Quinn - RBC Capital Markets

Keith Howlett - Desjardins Capital Markets

Operator

[Foreign Language]

Good morning. My name is Steve and I will be your conference operator today. At this time, I would like to welcome everyone to the Cascades Third Quarter 2016 Financial Results Conference Call. All lines are currently in a listen-only mode. After the speakers’ remarks, there will be a question-and-answer session.

I will now pass the call to Jennifer Egan, Director of Investor Relations for Cascades. Ms. Egan, you may begin your conference.

Jennifer Egan

Thank you, operator. Good morning, everyone, and thank you for joining our 2016 third quarter conference call. Throughout the call today, you will hear from Mario Plourde, our President and CEO; Allan Hogg, our CFO; Charles Malo, President and COO of our Containerboard Packaging Group; Luc Langevin, President and COO of our Specialty Products Group; and Jean Jobin, President and COO of our Tissue Papers Group. After discussion surrounding our North American operations, Mario will then discuss results from our Boxboard Europe Group, followed by some concluding remarks, after which we will begin the question period.

Before I turn the call over to my colleagues, I would like to highlight that Reno De Medici’s third quarter results released on November 3, can be reviewed on the company’s website. I would also note that certain statements made during this call will discuss historical and forward-looking matters. The accuracy of these statements is subject to risk factors that can have a material impact on actual results. These risks are listed in our public filings.

These statements, the investor presentation, and the press release also include data that are not measures of performance under IFRS. I would like to remind the media and Internet users that they are in listen-only mode and can therefore only listen to the call. If you have any questions, please feel free to contact me after this session.

I will now turn the call over to our CEO, Mario.

Mario Plourde

Thank you, Jennifer, and good morning, everyone. Earlier this morning, we released the third quarter results that were in line with our forecasts. On an adjusted basis, we reported earnings per share of $0.32 versus $0.52 last year and $0.38 in the previous quarter.

As discussed during our Q2 conference call last August, we expected challenging market condition in Europe and constant pricing pressure in containerboard to impact Q3 results. As anticipated, these dynamic were important driving factors in our third quarter results.

That said, our North American business segment executed well during the quarter. With all three business segment generating higher sales year-over-year and our Tissue and Specialty Products Group also increased their numbers of tons shipped.

On the KPI front, our capacity utilization rate was stable compared to the prior year. While both our Containerboard Packaging and Tissue Group benefited from positive seasonal trend in Q3, slightly better utilization in containerboard year-over-year was offset by a slightly lower utilization at tissue in the period.

Weaker results from European operations were largely due to the longer than usual downtime in Q3. That was a direct reflection of the persistent challenging market conditions. Q3 shipments were marginally lower compared to last year, due to a reduction of 8,000 ton in Europe. The effect of which were mostly offset by increased volume in North American operations.

Looking at our financial performance when we exclude specific items, our Q3 adjusted EBITDA declined $31 million, or 23% year-over-year to $103 million. Allan will provide more details later. Sequentially, Q3 adjusted EBITDA decreased by $9 million, which translated into a margin of 10.1%, while third quarter sales increased by $23 million, or 2.3% quarter-over-quarter to $1 billion.

Moving on to the cost and pricing dynamics, during the quarter, on the raw material side, the average quarterly price index for OCC Brown paper grade was up 17% on both an annual and sequential basis, while the average quarterly white fiber prices index decreased by 1% year-over-year and was up 7% sequentially. OCC prices have since come down $5 since August.

On the supply side, recycled material level should benefit from higher generations, following the end of the summer. Lastly, let me now say a few words about the leverage. We continue to deliver on our commitment to lower the debt during the quarter reducing it by 2%, or $39 million. However, in light of our weaker adjusted EBITDA performance, our leverage ratio increased marginally to 3.8 times from 3.6 times at the end of Q2. We expect this trend to be a reverse, as we successfully improve our operational performance, reduce working capital, and continue to allocate free cash flow towards debt repayment.

I will now let my colleague provide you more details and specific information starting with Allan, and I will then discuss the European operations followed by the near-term outlook. Allan?

Allan Hogg

Yes. Thank you, Mario, and good morning, everyone. I will begin with sales as the sale on Slide 12 and 13 of the presentation. On a year-over-year basis, third quarter sales decreased by a margin of $5 million. This was driven by weakness in Europe, where lower volume and less favorable sales mix and selling prices translated into lower sales of $16 million.

North American sales volume increased in all three segments, with Specialty Products delivering a good performance, where sales increased $7 million year-over-year. Sequentially, sales increased 2%, or $23 million, primarily a reflection of stronger seasonal sales in tissue and containerboard. The sales increases in these segments were offset by a weaker performance in Europe.

Moving now to EBITDA on Slide 14, Q3 adjusted EBITDA were $103 million, or 23% over last year, reflecting two main factors. First, apart from the weaker result out of Europe reflecting the persistent challenging market conditions, the contribution of our Containerboard Packaging Group was lowered by $10 million. Charles will give you more color on this performance.

The second main reason are the higher corporate costs due in part to a fire, which occurred in August in the recycled fiber yard at our Mississauga, Ontario containerboard mill, resulting in a $4 million cost impact. In addition, we also incurred $2 million of additional costs for the ongoing initiatives we are taking to implement a new ERP system and to transform our internal business processes.

These factors combined with foreign exchange losses on hedging instruments and positive items of 2015, not repeated this year, explain the volumes. I will note that going forward, we expect that costs related to our business process modernization to average approximately $7 million on a quarterly basis through the end of 2017.

Sequentially, as detailed on Slide 15, Q3 EBITDA decreased by $9 million, again, reflecting weaker results from our European Boxboard division and higher corporate activity costs, as noted above. These impacts were slightly offset by improved results in tissue that are largely attributable to higher volume and favorable raw materials and product mix.

Slide 16 and 17 of the presentation illustrate the volumes of our Q3 EPS and the details of the specific items that affected our quarterly results, both on a year-over-year and sequential basis. Compared to last year, our third quarter adjusted EPS decreased to $0.32 from $0.52 last year.

Sequentially, adjusted EPS decreased by $0.06. In both periods, it reflect the weaker operating results, partially offset by a higher contribution from our share of results of associated and JVs.

On Slide 18 and 19, it illustrates the specific items recorded during the quarter. We recorded a total of $10 million of specific items in Q3 that impacted our quarterly net earnings. More precisely following the Q2 closure of a Toronto converting plan, our Tissue segment incurred impairment charges of $2 million related to the reevaluation of some equipment and a $3 million provision related to a lease contract. We also recorded a $7 million foreign exchange loss on our long-term U.S. denominated debt and related financial instruments.

As illustrated on Slide 20, cash flow from operations stood at $68 million during the third quarter of 2016, including payments of financing expenses totaling $38 million. Capital expenditures including capital lease payments totaled $27 million, resulting in a free cash flow of $37 million during the quarter.

Moving now to our – the debt reconciliation. In addition to the cash flow from operations, working capital provided $22 million in our liquidity, which were partly used for CapEx payments and to offset the currency impact on our long-term debt during the quarter. I would also note that total available funds on our revolving credit facility stood at $550 million at the end of September.

Looking now at Slide 22, we detailed our quarterly EBITDA margin and leverage ratio when taking into account the consolidation of our partly-owned subsidiaries and joint ventures on a proportionate basis.

Before finishing, please note that we provide updated financial information on Greenpac on Slide 23. Details regarding each segment’s performance on Slide 25 to 38, an additional information on Slide 32 to 37. Thank you for attention.

I will now pass the call to Charles to discuss the Containerboard Packaging Group’s Q3 results. Charles?

Charles Malo

Thank you, Allan, and morning, everyone. During the third quarter of 2016, Containerboard Group shipments reached $294,000 short ton, which represented a 4% sequential increase. The higher volume in Q3 seen from both manufacturing and converting activities.

On the Converted side, shipments increased 4% sequentially, outperforming both the 1% Canadian market increase and a 3% U.S. market increase. Our manufacturing activities increased their operating rate to 96%, which represents an improvement of 4% compared to the previous quarter.

Accordingly, our external paper shipments grew by 3% and our integration rate including paper sold to our associated companies stood at 68%, which is a slight 1% decrease compared to the previous quarter.

On the pricing front, our average selling price increased by CAD$9 per short ton, or 1% on a sequence basis. On a segmented basis, our average Containerboard Canadian selling price remain stable, while our Corrugated Product selling price increased by $5 per short ton in Canadian dollars. This reflects the full impact of Corrugated Product price increase that were implemented in February to offset the negative impact of the weaker Canadian dollar.

With regards to profitability, the Containerboard Group generated an adjusted Q3 EBITDA of $58 million, which represented a margin of 16%. This represented a 3%, or $2 million sequential decrease and a 18% decrease compared to the prior year level.

Looking at our year-over-year performance, increased sales level to our counterbalance by higher raw material costs and by an increase in production cost per ton due to sales mix and higher freight maintenance costs. Our sequentially lower results mostly reflect higher raw material costs, mainly due to that $12 short ton OCC price increase, which we use our result by $4 million.

Similarly, high energy in chemical costs subtracted an additional $1 million each from adjusted EBITDA levels. However, on the positive, higher volume and selling prices contributed to $ 3 million and $1 million, respectively, to our results during the same period.

With regards to our short-term outlook, we expect the fourth quarter demand to follow the usual lower seasonal trend, which would result in lower demand than Q3, but stable demand on a year-over-year basis. On the positive side, we expect some benefit from the $50 short ton price increase in the containerboard sector and an $8.5 increase in the corrugated sector that was recently announced.

Finally, a word on the performance of their Greenpac mill. During the third quarter of 2016, Greenpac produced 126,000 short ton of linerboard. Notably Cascade proportional share of Greenpac’s net earnings, excluding specific items increased to $4 million, or $0.04 per share during Q3 from $3 million, or $0.03 per share in the previous quarter. The Greenpac x-degrades now represents 83% of the total production of the mill, up from 82% in Q2.

Thank you for your attention. I’ll now ask Mario to provide you with an overview of our Boxboard activities in Europe. Mario?

Mario Plourde

Thank you, Charles. Market condition in Europe during the first nine months of the year have been challenging and this has negatively impacted order inflow levels both on the recycled and Virgin board markets. In Canadian dollar, Q3 sales decreased by $8 million sequentially to $189 million. This reflects the expected lower seasonality inherent in Q3 in addition to several other factors.

Firstly, the average selling price in Europe decreased by 1%. This is the result of weak demand and the depreciation of the British pound. And secondly, lower volume in both recycled and Virgin grades, which reflect the persistent challenging market condition in Europe and the resulting longer than usual downtime taken in August.

On a year-over-year basis, Q3 sales in Canadian dollar decreased by 8%, or $16 million. This similarly reflects a lower average selling price, lower demand, and an unfavorable geographical sales mix. Third quarter adjusted EBITDA totaled $9 million, down $5 million, compared to the last year and $8 million from Q3 levels – Q2 levels sorry. This reflects lower volume and selling price as just explained and higher raw material costs.

Looking at the European market trends, I will note that weakness is widespread. In the country, where Reno de Medici is active white-lined chipboard price in Q3 were 4% below last year level, a direct reflection of the broader weak market condition and longer than usual scheduled downtime taken in August. Folding Boxboard order inflow during the quarter were also 2% below those of Q3 2015.

On a positive note, I’m pleased to report that Reno’s new CEO, Mr. Michele Bianchi begin in its new role on November 1. Mr. Bianchi is a paper and chemical engineer with more than 17 years of experience at leading players in the packaging sectors. In the near-term, this market weakness will likely continue in Europe. Order inflow level remains lower than last year level, while recycled fiber prices continue to be slightly higher due to export activity. Price increase were recently announced for the beginning of November. At this time, it is too soon to tell all it will unfold.

Thank you. And I’ll now ask Luc to provide you with an overview of the performance on the Specialty Product Group. Luc?

Luc Langevin

Thank you, Mario. Good morning. I’m pleased to report that the Specialty Products Group had the good third quarter. We did not incur significant variances during the quarter. Q3 sales totaled $157 million and were similar to Q2 in spite of the closing of our deinked pulp mill last July. The stable sales levels were largely the result of increased average selling prices in our recovery sub-segment during the quarter.

Q3. EBITDA totaled $18 million, a sequential increase of 13%. The stronger performance was primarily due to the improved spread in our recovery sub-segment. Looking more specifically at our top segment, our Industrial Packaging EBITDA was in line with our performance during the second quarter. Volumes remain strong in Q3 and a slightly favorable exchange rate and lower fixed cost more than offset the impact by a recycled material costs during the quarter.

The Consumer Products Packaging sub-segment generates Q3 EBITDA that was also in line with Q2 results, while spread was marginally impacted by a less favorable product mix, results benefited from the weaker Canadian dollar and reduced fixed cost. Shipment levels in the sub-segment continued to be solid.

Lastly, the recovery in recycling sub-segment improved its EBITDA by $2 million compared to the previous quarter. This other contributions reflects a consistent flow of material and improved average selling prices during the period. Operational performance was good and our fixed cost was slightly lower on the sequential basis.

Looking forward, we expect overall business conditions to remain favorable in the fourth quarter within the context of lower seasonal demand that is usually observed during the period. Our plants are currently busy and unless we experienced a significant drop of activity around Thanksgiving, we remain cautiously optimistic for the remainder of the year.

Thank you for your attention. I’ll now pass the call to Jean, who will present results for the Tissue Papers Group.

Jean Jobin

Thank you, Luc. Good morning, everyone. I’m pleased to report for a 6th consecutive quarter, the Tissue Group improved its quarterly performance on a year-over-year basis in Q3. In addition to this, I’m very proud to announce that we also set a new historical quality record in Q3 by generating $47 million of EBITDA, which represent close to 14% margin basis, representing a 7% improvement over our Q2 EBITDA of $39 million and corresponding margin of 12.3%.

The second-half of our summer season remains strong and contributed to our solid third quarter results. Our parent roll and converted – both parent roll and converted products shipment increased 3% compared to the previous quarter. We also generated a new historical quarterly record in terms of converted product shipments.

In terms of pricing, our average third quarter selling price increased 2% on a sequential basis. This improvement was mainly driven by the following reasons. The weakness of the Canadian dollar, the full realization of the second quarter Canadian middle market price increase, and finally, a favorable customer and product mix.

Year-over-year, our average selling price declined slightly reflecting a slight decrease in parent roll pricing and a less favorable Canadian dollar exchange rates. I would remind you that roughly 75% of our sales are in the U.S., and therefore, a slightly stronger Canadian currency year-over-year negatively impacts results.

Combined, our higher shipment and higher average selling price, as I just discussed, translated into a 5% sales increase on a sequential basis. On an operational basis, we continue to improve our productivity. Recycled fiber costs continue to increase, but this was more than offset by a reduction in the amount of external resource parent rolls in the quarter.

Q3 profitability levels were negatively impacted by a higher marketing investments in both the consumer product and Cascade growth segments, which is the new away-from-home branding.

Finally, we continue to make good progress with our West Coast project and are happy with this progression. Looking ahead to Q4, which is typically lower demand season for tissue, we are expecting lower volume primarily in Cascade pro, which cater to the away-from-home market and in the parent roll segment. As usual, in order to manage inventory levels, some year end paper machine shutdown maybe necessary.

Remember that, we also announced a 5% price increase in June in the Cascade pro Canadian market, which is slowly starting to impact our results due to the current market conditions. We announced another Cascade pro increased up to 6% for both Canadian and U.S. markets. These increases are effective December 1 and will be gradually implemented upon customer contract renewals and are expected to impact our results in 2017.

Thank you. I’ll now turn back the call to Mario for a conclusion. Mario?

Mario Plourde

Thank you, Jean. Looking ahead, we expect North American result to reflect that typically slower seasonality in both the Tissue and the Containerboard segment in the last three months of the year. In Europe, challenging markets realities are expected to continue to negatively impact operational results through the end of 2016.

On the pricing side, the announced containerboard price increase was implemented November 1. However, it will have only a marginal financial benefit in Q4 due to the timing of this roll out and the contract parameters. More measurable benefit will become in the first quarter of 2017. In tissue, the benefit from the full realization of the second quarter Canadian retail market price increase should continue to benefit result on a year-over-year basis.

On the cost side, OCC index price have decreased by $5 since August. When coupled with a greater generation and recycled material following the end of the summer, we would expect the market supply dynamic to be more favorable in Q4, which would benefit both our Containerboard and Tissue segment.

As always, our focus remains on securing favorable terms with our supplier and successfully fulfill all of our material input needs. At the corporate level, we will continue to invest in the implementation of our new ERP platform and order ongoing initiative to modernize our internal business process platform.

Looking ahead at 2017, we are committed to continue deleveraging our balance sheet, while also improving our competitive position through strategic and focus investment. At the heart of it is the successful implementation of our strategic action plan, which includes continuing to increase our integration rate in Tissue and Containerboard, maximizing our capacity utilization, and being disciplined on our capital allocation and execution.

To finish, I want to highlight that we firmly believe that our current effort will deliver strategic and financial benefit in the mid and long-term. However, in the short-term result, namely those of Q4 will reflect our higher investment levels and ongoing transformation effort.

I will now open the line for the question period. Operator?

Question-and-Answer Session

Operator

[Foreign Language] Thank you. [Operator Instructions] Your first question comes from Hamir Patel with CIBC Capital Markets. Your line is now open.

Hamir Patel

Hi, good morning. I had a couple of questions. Mario, just in Boxboard Europe you referenced some price rise that have been announced. Could you speak to maybe what level the – of increases have been announced by Cascade?

Mario Plourde

We announced €60 on all material recycled in Virgin for November 1. As you know, in Europe, the implementation of the price increase take sometimes because of the contract and the conditions in Europe, so it’s a $60 – €60 euro we announced in Europe.

Hamir Patel

Okay, thanks. And just turning to the Containerboard segment question for Charles, when Pulp and Paper Week raised prices in October, there was some commentary in the article that some media producers out there were looking for additional price hikes on top of the 50 to sort of restore the medium liner spread to more normalized levels. Have you seen that play out in the recycled market?

Charles Malo

I’m not going to comment on market, but our announcement has been $50 both on the liner and the medium.

Hamir Patel

Right, okay. So even though the Pulp and Paper Week reprint at the 40 your sense that the market is still pushing the full 50?

Charles Malo

We are – on our side, we have announced our customers the $50, the Pulp and Paper moves $40, and we’re still aiming at the $50 before the end of the year.

Hamir Patel

Great, thanks. That’s helpful. And just final question I had for Jean on the tissue business, you referenced away-from-home price hike, I think you said that was just in Canada. Could you maybe just describe that again what that is and your competitors have followed the suits on that announcement?

Jean Jobin

Well, what, of course, we did, if you remember, in June, we have announced a 5% price increase for all of our Canadian away-from-home market. Of course, as you know, in the away-from-home, there’s a lot of business under contract. So it’s not the day one that you see the 5%, but when contract get renewed, we all close to 5%, so that was away-from-home.

And what we announced now was up to six in both markets Canada and U.S. and we’re strategically placing those increase to what we need to have by segment. As for the competitor, I cannot comment on what they do, or what they won’t do. But there’s some public announcement on their side that they do sometime that you should refer to.

Hamir Patel

Okay, great. Thanks. That’s all I had.

Operator

Your next question comes from Sean Steuart with TD Securities. Your line is now open.

Sean Steuart

Thanks. Good morning, everyone. Questions is on the corporate expenses and I just was hoping you guys could maybe unbundle this for me. The Mississauga fire $4 million impact that was fully embedded in incorporate cost, is that correct?

Mario Plourde

Yes, it is.

Sean Steuart

Okay. And just based, I want to make sure I’m understanding your guidance correctly. The $7 million per quarter through the end of 2017, that’s just for finishing off the ERP implementation, is that the right way to think about it?

Mario Plourde

Yes, ERP and the business transformation of our process in the past, we said about $4 million to $5 million a quarter, now we’re more to the average of $7 million, because we’re pushing high and accelerating the pace to finish that program by the end of next year.

Sean Steuart

So how should we think about overall corporate costs? And I guess this assumes for the foreign exchange hedging part of it constant. But for 2017 on a quarterly basis, how would you think about your overall corporate costs trending?

Mario Plourde

Well, we have not finished the budget. But around EBITDA 2015 to $20 million, depending on what the FX is doing and all the share-based compensations. So that’s pretty hard to predict, but there’s a – yes.

Sean Steuart

And the ERP role that would be finished by the end of next year, is the right way to think about it?

Mario Plourde

That’s the target, yes.

Sean Steuart

Okay. And then next question, Greenpac, in light of the debt refinancing you finished earlier this year and presuming this price hike is fully implemented. Can you speak to dividends you expect to potentially pull out of that investment in 2017?

Luc Langevin

We have the Board in Greenpac, so we have not had any discussion at this point on the – on dividend distribution. So we will – I’ll refer to the discussion at that point when we have the discussion in Q1 of 2017.

Sean Steuart

Okay. That’s all I have for now. Thanks, guys.

Operator

Your next question come from Bill Garnett with Scotiabank.

Bill Garnett

Hi, guys. Just I appreciate that. Are you saying that it might be a bit tough to speak to the Containerboard price move understanding, if it should be layered in kind of later in Q4 and more fully in Q1. But can you maybe help us think about how the benchmark price move should affect? How it’s going to move through your Containerboard sales versus corrugated boxes and then Canada versus the U.S.?

Charles Malo

Okay. So we have – we’re – with RGB, we have a 68% integration rate in our Containerboard sector. But the – our own converting facility are 54% of the overall. So on the 54% converted product, the price increase starts 30 days after the movement of the Pulp and Paper and goes about three to four months for the full implementation. So starting on the – I would say, on the 54% of the volume, we start a bit in Q and Q4, both mainly in Q1 2017.

On the roll, I would say, the rolls are the non-integrated business strictly on the Containerboard the implementation starts November 1.

Bill Garnett

Okay, perfect. That’s great. Then on tissue now that you’ve acquired an interest in the Longhorn Converting facility, can you talk about what that does for your integration rate in the Tissue business?

Jean Jobin

Yes. Thank you, Bill. Yes, Longhorn is not a big plant at this point. Longhorn is part of the longer strategy for us. On the integration, it’s not even changing our integration rate not even by 1% at this point. So it’s still a minimum at this point, because we have to align trim to be really compatible down the road.

Bill Garnett

Okay. And in terms of your marketing investment in that business, do you expect current levels to kind of be your average spend on that, or do you expect to invest more in marketing initiatives going forward?

Jean Jobin

No, we welcome this more. We’re on the hike in terms of investment at this point, because we have big brand the – away-from-home into Cascade pro analysis made a huge work on the brand rationalization as well, very well received by the market by the way and same thing in the consumer product with the Cascades brand, we’re working very hard right now. So Q4 would still be higher than normally, but after that, it’s going to settle down to regular levels.

Bill Garnett

Okay.

Charles Malo

If I can add just…

Bill Garnett

Yes.

Charles Malo

If I can add just on the Containerboard and Packaging side, we have also announced an 8.5% price increase that started to be implementation in November in the Converted Products.

Bill Garnett

Okay. Thanks, guys. That’s all I had.

Operator

Your next question comes from Paul Quinn with RBC Capital Markets.

Paul Quinn

Yes. Thanks so much and good morning, guys.

Mario Plourde

Good morning.

Paul Quinn

You seem a little reluctant to discuss Containerboard pricing, which is pretty surprising, I’m just kidding. It’s – if you can maybe – you can talk about your discussions with your customers and your order file on October specifically and how that changed year-over-year and specifically with respect to, I guess, the Q3 average?

Charles Malo

I’m not sure – can you, Paul, I’m not sure I understand. Can you repeat the question please.

Paul Quinn

Well, you just delivered Q3 results. So I’m just wondering post-Q3, i.e., October, what you’ve seen in terms of shipping levels on a year-over-year basis and how that relates to the Q3 average what your order file is like?

Charles Malo

Yes, okay. We – I can say that we – our order booking right now are pretty good, both sides of the border, both on the rolls and also on the Converted Products.

Paul Quinn

Okay. And then just to – going back to Bill’s question on the roll out of the Containerboard price increases. So I think I understood this and thanks for the extra color. But maybe just to clarify on the rolls, which I guess, makeup the non-integrated side 32%, you expect to realize at November 1, and then really on your own stuff to 54% that’s 30 days after receipt, so that’s really December 1, is that fair we did that way?

Charles Malo

Well, we started exactly. So when the Pulp and Paper, I’m going to use on the boxes on the converted, which is 54% of our overall business. After most of our business moves with these the Pulp and Paper movement, so 30 days after and we have different contracts up and down. So that’s why we’re seeing that the increase will take three to four months to go in. Some of our contracts are 30 days after the P&P. Some of the contracts are 60 days, and some are 90 days, but ups and downs. So that’s why we’re seeing that it’s going to take about three to four months to fully implement it, some will go in the Q4, but most of this about 80% will be in Q1 2017.

Paul Quinn

Excellent. Thank you very much. And then just lastly, on the debt and capital allocation side, you’ve announced a number of price increases for 2017, both on Tissue and Containerboard, and if those flow through, you should generate quite a bit of cash. I’m just after you spent your strategic CapEx on your business to improve competitiveness. And where is the priorities for cash between share buybacks and increase in the dividend?

Mario Plourde

Good morning Paul. This is Mario speaking. Basically, we will keep on focusing towards the debt still. As we mentioned many times, we like to be closer to three times debt to EBITDA. So we’re not there yet. So most of what we will generate in addition to what we are now after the price increases will be going towards that.

In terms of CapEx and dividend, I guess, these questions will come later on, because we are in budget session, as we speak. So we don’t have a full view of the CapEx, and I guess, the dividends will be coming – the dividend discussion will be coming thereof. So – but mostly towards that t he moment.

Paul Quinn

All right. That’s all I had. Beset of luck.

Operator

[Operator Instructions] Your next question comes from Keith Howlett with Desjardins Securities. Your line is now open.

Keith Howlett

Yes. I wonder what if you can tell us what’s your year-to-date spending is on the ERP and efficiency initiatives?

Allan Hogg

That’s not something we are open to discuss at this time. But we said in the past, we’re running at $4 million to $5 million a quarter, now it’s maybe more towards a $7 million of average. So we can do a range with these numbers.

Keith Howlett

All right, thanks. And then just on European boxboard, I gather the largest player has announced the price increase. But is everybody in the industry, or as what percentage of the industry is suggesting they’re going to raise price?

Mario Plourde

I don’t know at this point. I knew a few large player have announced and we did announcement. I didn’t make the evaluation of – the complete evaluation over the market. So it’s pretty tough to answer precisely your question.

Keith Howlett

And how long does it take in Europe to implement pricing?

Mario Plourde

Sometimes as long as six months.

Keith Howlett

Great. Thanks very much.

Mario Plourde

Thanks.

Allan Hogg

Thank you.

Operator

Thank you. There are no further questions at this time. Mr. Plourde, there are no – please continue.

Mario Plourde

All right. Thank you, everyone. Have a good day and we will be talking in the next quarter.

Operator

[Foreign Language] Thank you, ladies and gentlemen. This concludes today’s conference call. You may now disconnect.

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