Resolute Forest Products Inc. (NYSE:RFP) Q2 2016 Earnings Conference Call August 4, 2016 9:00 AM ET
Alain Bourdages - VP
Richard Garneau - President & CEO
Jo Ann Longworth - SVP & CFO
Bill Hoffmann - RBC Capital Markets
Paul Quinn - RBC Capital Markets
Good morning, ladies and gentlemen. Welcome to the Resolute Forest Products Second Quarter 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the presentation, we will conduct a question-and-answer session. [Operator Instructions] Please note that this call is being recorded today, Thursday, August 4, 2016 at 9:00 AM Eastern Time.
I would now like to turn the meeting over to Mr. Alain Bourdages, Vice President. Please go ahead, Mr. Bourdages.
Good morning. Welcome to Resolute's second quarter earnings call. Today, we'll hear from Richard Garneau, President and Chief Executive Officer; and Jo-Ann Longworth, Senior Vice President and Chief Financial Officer. You can follow along with the slides for today's presentation by logging on to the webcast using the link in the presentations and webcast page under the Investor Relations section of our website or you can also download the slides. Today's presentation will include certain non-U.S. GAAP financial information. A reconciliation of those non-GAAP numbers to U.S. GAAP financial measures is included in our press release and in the appendix to the slides.
We will also make forward-looking statements, forward-looking information is based on our current assumptions, beliefs and expectations, all of which involve a number of business risks and uncertainties, and can change as conditions do. Please review the cautionary statements in our press release and on Slide number 2 of today's presentation.
Thank you, and good morning, and thank you again for joining us today. We generated adjusted EBITDA of $85 million for the quarter compared to our $59 million in the first quarter. This increase was achieved through significantly higher contribution from our wood products segment and strong performance in and specialty papers despite challenging market conditions. By segment, we generated adjusted EBITDA of $23 million in market pulp, down by $4 million from the first quarter, negative $2 million from tissue operation, down $2 million, $29 million in wood products, up $26 million from previous quarter; $16 million in newsprint, up by $1 million and $26 million in specialty papers, up by $6 million.
This quarter we saw our average transaction prices rise significantly in wood products while demand continue its slow recovery. Newsprint pricing maintained its steady rise from price increases announced earlier this year. While pulp prices showed marginal gains as markets reach a relative balance. The only segment in our portfolio that suffered pricing declines this quarter was specialty papers where excess supply challenges significantly end gap [ph] any pricing recovery potential in the short-term.
While the total favorable impact of pricing on EBITDA in the quarter was $10 million, cost reductions and increased volume also positively impacted EBITDA by $20 million and $5 million respectively. On the other hand, the strengthening Canadian dollars resulted in an unfavorable variance of $9 million which was mitigated by the delay in their recognition of the lower inventory because of sales due to the weaker Canadian dollars in Q1. Results of the Atlas tissue operation were disappointing, negative $2 million of EBITDA. We will provide greater clarity on our expectations for the segment in a few minutes.
First, let's start with market pulp. World demand for chemical pulp grew by 5% in the quarter compared to the same period of 2015, leading a reduction of 1% in North America, an increase of 15% in China, and a decline of 1% in Western Europe. World capacity grew by about 3% in that plane, mostly reflecting the significant expansion of Latin American hardwood capacity. World demand for softwood was up by around 3% in the quarter. This reflected 2% increase in shipments to North America and 9% increase to China, while Western Europe was flat. In the same period demand for other wood was up by about 6% while shipments to China up by 15%, while North America and Western Europe were down by 6% and 1% respectively.
For softwood and fluff grades, seasonal reductions in production arising from schedule outages in the entire sector created a favorable pricing environment. However, as expected growing hardwood pulp supply prompted downward adjustments to pricing in the border. Our overall transaction price in the market pulp segment increased by $6 per metric ton in the quarter; the positive impact of pricing was more than offset by the strengthening Canadian dollars and its negative impacts on our costs. Our shipment declined by 7,000 metric tons in the quarter. Our inventories also feel by 11,000 metric tons over the same period. The overall decrease in production was mostly due to annual outages at Calhoun and Coosa Pines, as well as maintenance related downtime at Saint-Felicien and Thunder Bay.
Overall, our market pulp EBITDA declined by $4 million to $23 million. Our perspectives on pulp markets remain unchanged. Softwood grades maintained solid fundamentals in the short-term with relative uncertainty beyond the current year given capacity additions of about $1.7 million metric tons in 2016. Hardwood pulp will continue to be under pressure from increasing global supply, a situation that is unlikely to change in foreseeable future. We still firmly believe that market pulp fundamentals will remain positive in the long-term with continuing growth in demand. In the second quarter of total tissue consumption in the United States grew by 2.9% against the same period last year. Our wood from home shipments recorded the strongest increase over the period at 2.2% while at home volume grew by 1.5%, production of current rolls increased by 1.6%.
Our average transaction price increases by $71 per short ton during the quarter as a result of changes in our sales mix. Overall, the same period shipments remained stable and our average cash cost per short tons increased by 11%. We are very disappointed with the result, both in the quarter and since the acquisitions in November of 2015. The EBITDA is far from our expectation of $23 million on an annualized basis. Volumes fell short of estimate in away from home, and retail sales in short tons far exceeded those of 2015 by 19% year-to-date but shipments fell short of set objectives, particularly in retail sales. We believe that retail sales will catch up overtime as we continue to implement new programs with major retailers. In addition, external sales of current rolls where below the 2015 level on a year-to-date basis, partly due to higher internal use and converted products.
Productivity on tissue machines as well converting lines was lower than the prior year and well below our expectation for 2016. Reliability and operational issues as well as high employee turnover combine to negatively affect output. To address these challenges we have purchased a new wrapper [ph] to debottleneck one of our capacity retail lines, implemented a preventive maintenance program with the goal of improving reliability in uptime and we are also developing a rigorous tracking system in follow-up process. As was eluded, we believe that we improve what we measure and we are implementing this culture at our Atlas mills.
Lastly, costs have proven to be higher than anticipated, particularly the one-off on roof repair and integration costs, as well as we paid a maintenance including cost to bring the Atlas facilities to Resolute safety standards, better handling labor in Orlando we have experience, high turnover rate also SG&A. We are in a process of reducing these costs not only with the previously mentioned preventive maintenance program but also through the consolidation and optimization of warehousing, the introduction of new labor policies and training programs, as well as the streamlining of the organizations structure.
On a positive note, we have fully achieved divergent pulp synergies that we had included in the acquisition EBITDA estimate. All of the softwood and hardwood pulp used in the Orlando facility is now sourced from Bowden [ph] mills.
In addition, we also started to consume recycled bleached kraft pulp from Fremont mill which we expect would improve both, productivity and product quality in Miami. This recycled bleached kraft fiber is also being us in Orlando to replace purchased rolls. We expect that annualized EBITDA from Atlas will be approximately $8 million to $12 million. We will continue to apply Resolute best practices in production and cost optimizations. Once the Calhoun project is started up, we will fully integrate our tissue operations allowing us to offer the full range of grades and quality to the market.
To conclude on this segment, we remain convinced that the acquisition of Atlas was an important strategic move which is essential to the success of the Calhoun tissue project.
U.S. housing starts rose by 0.7% on average when compared to the first quarter but were unchanged when compared to the same period last year reaching $1.2 million in seasonally adjusted terms. However, single-family housing start and new residential sales in the U.S. were up significantly in June by 13% and 25% respectively. Our overall pricing in the segment increased by $19 per thousand board feet in the quarter, following general markets trends.
Our shipments increased to 445 million board feet this quarter, a near historic high for the Company's with production improvement in Atikokan, Ignace and a number of our wood products facilities. As never ending discussions continue on the new softwood lumber agreement, we are pleased to see growing recognition for our believe that Central Canada softwood lumber industry is free of government subsidy, although we understand there may be potential trade impediments in the short-term, we believe that the 2013 forestry regime in Quebec and 2005 NAFTA Ruling for Ontario should lead to free trade for Central Canada.
North American demand for newsprint fell by 7% in the quarter compared to the second quarter of last year. In the response to rising prices in North America overseas shipments declined by 75,000 tons compared to the same period last year on the backdrop of falling global demand which fell by 6% during April and May when compared to 2015. Despite continued declines in demand, the North American operating rates that remain in excess of 92% so far in 2016. In June, we successfully implemented in deferred price increase our $15 per metric ton in the United States. However a lagging recovery in export markets limited our aggregate increase in price for newsprint to $9 per metric ton compared to the first quarter.
Despite increasing price and falling demand, our sales volume was down only 2% of 9,000 metric tons. Increases in operating costs due to unfavorable foreign exchange largely upset the positive pricing impact. EBITDA improved from $15 million to $16 million for the quarter. Demand for uncoated mechanical papers in the second quarter was down by 3% in North America compared to the same period last year. Markets for supercalendered papers were particularly unfavorable, declining by 8% during the quarter. Additionally, the trade -- the starting impact of the restart of the Port Hawkesbury mill in 2012 continues to exert financial pressures on the Resolute and other Canadian producers which are paying approximately $80 million in CVDE on an annual basis. In this reproduction of uncoated mechanical grades was down by 1% during the quarter resulting in operating rates of 89% shortfall in 2016.
To demand decline for coated mechanical paper in North America disoriented [ph] during the second quarter versus Q2 of last year falling by 6% compared to decline of 9% in the first quarter and a drop of 18% in the fourth quarter of 2015. North American production followed the same trend declining by 6% compared to a drop of 16% in Q1. Imports into North America increased by 14% during the quarter as revenue was driven by a weakening euro and 7% decline in demand in Western Europe.
Operating rates although less favorable than in the first quarter, remained healthy at 92%. As a result overall transaction price fell by $11 per short ton coming mostly from our coated products. Shipments declined by 11,000 short tons inspite of lower pricing and volume in the segment. The segment recorded a $6 million increase in EBITDA during the quarter compared to the first quarter reaching $26 million due to increased operating efficiencies and a larger benefit from our integrated hydroelectric power operations.
I would like to follow-up on the four areas of focus that we discussed in our first quarter call. The first element was newsprint pricing increases, our previously announced increase of $15 per metric ton for the US customers for each of June and July have been fully implemented with a full expect -- effect expected over the next quarter. In Q3, we expect further price recovery in other markets.
The second element of focus was on our tissue growth execution. As discussed we have a number of challenges at the Atlas operation for which action plans are in place. As for the construction of our new tissue facility in Calhoun, it is progressing on schedule. Capital spending for the project ensuring the quarter was $30 million, the total amount spent since construction started was $105 million on a budget of $270 million. Our first of three converting lines is currently being commission in all other major equipment including to tissue machine have been manufactured and are either already worked [ph] or currently in transit.
Thirdly, our new pulp digester is now reaching the expected per day output, although not yet on a consistent basis. The new equipment is now manufacturing higher quality product and we anticipate more concrete result now that the mill annual maintenance is completed.
Lastly, as evidenced by your result of lumbar, we are continuing to achieve productivity gains in sawmills in Atikokan and Ignace despite challenges in the recruitment of trades people. While further potential remains, we will continue to focus on increasing output in these facilities. I would like to discuss the damage we suffered at our larger hydroelectric facility a few weeks ago. I can confirm that one of the two turbines has been damaged beyond repair and will be replaced, thereby limiting the output of the facilities for an extended period of time. Our existing insurance policy will allow us to receive compensation for replacement cost as well as loss production, except for the $3 million deductible.
Jo Ann Longworth will now review our financial performance.
Jo Ann Longworth
Good morning, everyone. Today, we reported a net income of $6 million for the second quarter or $0.07 per share, excluding special items, compared to a net loss excluding special items of $18 million in the previous quarter and a net income excluding special items of $7 million for the same period last year. Special items included $37 million of closure cost, impairment and other related charges, $32 million of which is related to the accelerated depreciation of a newsprint machine at Augusta. Non-operating pension and OPEB cost of $6 million and inventory write-downs related to closures of $5 million. Of these items only $4 million are cash-related.
Total sales in the second quarter were $891 million, up by $14 million compared to the first quarter. Pricing for our products increased across all of our businesses segments except for specialty papers. While pulp rose by $6 per metric ton, tissue by $71 per short ton, wood products by $19 per thousand board feet, and newsprint by $9 per metric ton, especially papers sell by $11 per short ton. In total, higher pricing favorably impacted our EBITDA by $10 million when compared to the first quarter. While shipments of wood products rose versus the previous quarter, volumes in market pulp and paper segments were lower.
Excluding foreign currency and volume impacts, our cost of goods sold declined by $15 million in the quarter compared to Q1. The key changes in cost items were up fold [ph] with $9 million reduction in energy-related costs, $3 million of which came from our internal hydro generation. A $7 million decrease in wood cost stemming from favorable seasonal pricing in the U.S., as well as more efficient fiber usage. Lower chemical costs of $5 million offset by $2 million of additional cost related mostly to maintenance activities and $4 million of stores inventory write-down following the shutdown of a newsprint machine at Augusta during the quarter.
Compared to the first quarter, market pulp all-in delivered cost was up by $32 per metric ton, mostly as a result of maintenance and unfavorable foreign exchange. However, thanks to improving prices EBITDA per metric ton fell by only $10 to $67 per metric ton. As a result of the items we discussed previously, the delivered cost of a tissues segment which includes depreciation increased by $149 per short ton. Consequently, EBITDA fell by $125 per short ton. In wood products, the delivered cost declined by $39 per thousand board feet, due largely to a delay in the recognition of lower inventory inter-cost of sales due to the weaker Canadian dollar in Q1, as well as better fiber utilization and increased volume.
EBITDA for the segment rose significantly to $65 per thousand board feet. Newsprint delivered cost edged up this quarter reaching $511 per metric ton, prompted by unfavorable foreign exchange impacts and declining volume. Nevertheless, with a benefit of rising prices, EBITDA per metric ton rose by $2 to $31 in the quarter. In specialty papers, the delivered cost declined to $625 per short ton. This performance was achieved as a result of better operating efficiency, as well as strong contribution from internal hydro operation. Therefore, despite falling prices EBITDA rose to $68 per short ton, a gain of $17 compared to the first quarter.
Cash and cash equivalents increased by $3 million in the quarter to $40 million which reflected net cash from operating activities of $63 million compared to capital spending of $52 million including $30 million for the tissue project in Calhoun, as well as countervailing duty cash deposit of $6 million. No drawdown was made on a revolving credit facility over the course of the second quarter maintaining $20 million drawn on the facility as of June 30. Total liquidity increased to $452 million. However, as of July 31 we borrowed an additional $60 million on the facility. This amount was used to meet ongoing planned obligations related to our Calhoun tissue project in addition to previously disclosed annual contributions of $29 million required under existing pension funding relief regulations in Canada. The drawdown of $80 million as of July 31, 2016 is in line with our previous guidance of a maximum drawdown of $150 million by the end of the year.
Net pension and OPEB liability on our balance sheet decreased by $27 million at quarter end and slightly below $1.2 billion mainly due to our regular contributions of $31 million. As explained above, pension contributions will be significantly higher in the third quarter but will return to more normal levels in the fourth. As a result based on the current exchange rates, our guidance for 2016 full year pension contribution and OPEB payments remained unchanged.
Operator, we'll now open the call for questions.
[Operator Instructions] Your first question comes from the line of Bill Hoffmann of RBC Capital Markets. Please go ahead.
Thanks, good morning. A couple questions, I'm sorry if you viewed in or some as detail -- Jo Ann, could you talk a little bit about -- you talk about using a revolver here, whether you were investigated using sort of project financing or other sort of third-party financing as a way to protect your balance sheet?
Jo Ann Longworth
Well, currently Bill we believe the ABL is the best way to finance this project. Currently, we've got as you can see plenty of liquidity out of that ABL. And obviously as we've said before, we are always open to new sources of financing that well further improve our liquidity although I will least state, we believe we have liquidity plenty to finish our CapEx expansion, our tissue expensive in Calhoun. But as we've said before we always got our eyes open for appropriate low cost levels of identity [ph].
Okay, thank you. And then Richard, can you talk about the tissue business here, just sort of when you see the cost normalizing and starting to generate positive cash flows out of that business?
Well, not really. I think that I mentioned the plans that we've put in place, so I think we're expecting that we see us on some positive in the third quarter, obviously with the list of item as I mentioned -- I think that to implement the action plan is going to take some time but I think that the -- and I think the encouraging thing to say is that when you compare shipments to 2015, they were 19% higher or so and I think that while we had certainly higher expectations but when we got into this business so I think that we have realized that we had some volume [ph] back and that we bought a new wrapper of two to debottleneck one of the lines that is going to help -- certainly to improve the productivity on the converting sides and as I also mentioned, we're working with various retailers here to increase also all of our sales at home products.
And lastly, I think that the initiative of that went upto use -- basically to eliminate the recycled material at Miami and use I believe kraft pulp from Fremont is going to provide pulp with better quality. And also based on the trial that we have made that the efficiency and that production is also going to benefit from this change. Obviously, the pulp is slightly higher than cost [ph] but certainly we expect that it's going to be completely offset by the gains that we are going to make.
Alright, thank you. And just further on the tissue side, what's your general sense of the markets -- you have revealed ownership of the business from a customer standpoint?
Well, I'm not sure that I understand your question.
Jo Ann Longworth
On Atlas side, one of the things -- don't forget, Atlas was a pretty small company that was highly leveraged before we bought it. So the general market perception has been a good one because Resolute is a well-known, reputable company that has dedicated -- has already outlined its commitment to tissue going forward. So that actually improves the perception of customers in the marketplace, specifically as it relates to Atlas.
And if I can add on this one, I think that the fact also that we are building this world-class machine and this be converting a line in Calhoun, there is also -- I think that I can say that's the right thing with lot of attention from the retailer view goes to that. There was something missing into the product mix and now was with Calhoun that we're basically being -- we're going to be able to provide a full spectrum of products that is going to provide a significant advantage. And I think it's a reason we -- I believe that this acquisition was important.
Yes, thanks. That's good color on that. And then finally, you did really -- some working capital here looks like in the second quarter, can you just talk about through work capital, view it as kind of a little bit unusual expectations at the back half of the year?
Jo Ann Longworth
Sorry, I didn't quite understand the question, Bill. Are you talking about the increase in the ABL drop in July?
No, no. You released working capital cash in the first half?
Jo Ann Longworth
Yes we have and at the moment a lot of that has to do with the change in mix of our customers, for day sales are down. So that type of the day's sales is certainly something we expect but do remember that our sales tend to increase towards the end of the year, so the working capital kind of offsets that gain as we build sales.
Okay, so for the full year is there an expectation you'll be lower on working capital needs or higher year-over-year?
Jo Ann Longworth
I really don't have that number, Bill.
Okay, thank you. That's it.
Your next question comes from the line of JC Baldonie [ph] of Principle Global Investments. Please go ahead.
Hi, thanks. It's TJ Beldoni [ph]. On tissue regarding Atlas, and I believe also one of the aspects of the acquisition was the managerial talent that you acquired; you mentioned in your comments about employee turnover and other related operational issues. Are those -- have those affected customers? And can you talk a little bit more about the turnover, is this line workers or management?
It's the only -- all the employee, so you have the effect, the Orlando mills and I think that we have basically put in place a plan on training because obviously when you have height it's always an issue but I think the quality of the product has been maintained. So I think that it's just an impact off slowing the production, so we don't have the same efficiency when you have to train people and its being addressed. On that management team there is no significant changes other than we had added the two really experienced salesmen that are working really closely with the team at Atlas and get prepared to market the production that is going to come from our Calhoun in the first quarter of next year.
So I think that -- also there is certainly -- on health and safety, just use this example that it's a value that we have at our company that make sure that the employees -- there is significant investment has been made to eliminate that basically the risk for the employees, and have invested on this so there is more work that we do and that we have also practiced whether -- if it's not safe, we don't operate in that times because of the risk, we just basically apply all the approach to make the correction. And so I think that going forward, third quarter, fourth quarter, and next year we're going to have better efficiency rate of production and with the training program and the change also in hiring practices that we're going to correct basically the weaknesses that we had it underpriced since the acquisition.
Okay, thank you for that. That's all I have.
Your next question come from the line of Paul Quinn of RBC Capital Markets. Please go ahead.
Thanks, good morning. So I've got a couple of questions. I apologize because we have a conflict with another company that reported. So you might have talked about this, the wood products performance in the quarter was quite a bit higher than we expected. So maybe you could just address the cost reduction that you saw there and the price improvement, especially the price improvement in relation to the higher Canadian dollar, so I didn't quite see that. So I guess the question is, one on cost and one on was there any mix change quarter-over-quarter that resulted in higher realized pricing?
No, I think the study -- overall, we maintain the same mix as we reduced the inventory obviously, unless the IE shipments and with that you'd finding change where we have eventually that add a lower value in Q1. So when we sold this product, it basically came into the cost of sales and that we benefited from this lower Canadian dollars and Q1 was reflected than Q2, and we also have a number of sawmills where the productivity was excellent in the second quarter. We are making progress also at Atikokan and Ignace, I think that we still have some challenges to find the correct people at the two locations but I think that we are making good progress, it's not as fast as we would like, as I would like but I think that shown -- what we have shown in the second quarter as I indicated -- it's only an indication of what we can do on this side but -- and we also in the quarter took down for simpler time that too of our studs that wood sawmills that where we started. So I think all this basically has been factored into our results in the second quarter.
Okay. And just on the implementation of the newsprint price hikes, were you outright right here because that didn't seem to flow through in Q2. So just wondering if you could pick up more in Q3?
So I think it has been implemented in west and obviously we don't have the full impact in the second quarter but we're going to see it in the third quarter. We also have the price increase in Canada that is going to also -- we're going to see it in the third quarter and there is also -- I think a lag effect, we're also seeing some recovery in the export market, and that we're also going to see in the third quarter but it's lagging -- the reason why we don't have the full impact, it's -- modestly because of the 40% on all of our shipments that will be seen that we haven't seen, basically in the second quarter, the improvement in market conditions -- at the first quarter we are going to see the improvement.
Okay. And last question I had, just on the tissue segment and I guess that list you improved over six months now. What are the big learnings there that you've had with -- and it's at a decision that you've read it at this point?
Jo Ann Longworth
Certainly, the big learnings that I think we did spend a lot of time in the script Paul talking about some of the things that have been challenging; one, being the forward ramp up in the retail sales that we were expecting in 2016 despite the fact that we are up on the converted side by 19% year-to-date versus last year. We've had challenges on the productivity, some of it due to reliability, some due to higher labor turnover in Orlando. And also costs were higher in a number of areas, some of them were one-off like roof and integration, others in terms of the turnover in Orlando which we discussed the higher repairs of maintenance.
So we've got action plans in place for every single one of those, including ongoing programs and discussions with large retailers that also integrate the anticipation of start-up of Calhoun. We've put in a preventative maintenance program, we've got new training -- new labor policies and training in Orlando, and thankfully, we've already seen improvements coming out of that in July; as well as a really rigorous tracking and follow-up process for our productivity and our keep KPIs on the production side. Finally, we did put in -- debottleneck one of our newest and most efficient machines by putting in a new wrapper engine.
And what I would add, Paul, on this one; I think that when you -- and I think -- I led the industry for quite a few years, when you kicked the tyre upon the business that you know less, I think that it is more difficult, so -- and it's a reason why I believe this acquisition is important for our company because I think that even though it's not that we don't get a result that we weren't expecting, I think that we are learning and what we are learning -- I think that it's certainly something that is going to be positive for the start-up of the Calhoun projects. I think that we have to be honest with ourselves so from next time that I kick the tyre on something that I know less, we're going to probably look more into the detail. So it's the lesson that will come in every phase of your life so I think that I can say that I learned this one too.
Thanks for the additional detail and fair colors. Best of luck guys.
Your next question comes from the line of Ameya Patel [ph] of CIBC Capital Markets. Please go ahead.
Richard, if Canadian lumber producers find themselves paying duties next year -- just to get your perspective on what the impact of that might be on both, I guess the supply and pricing of fiber in Eastern Canada for pulp and paper mills?
Well, I think that based on -- the previous negotiation and conflict between Canada and U.S., I think that when there is duties that is slapped on, on Canadian there is always an adjustment implied, so I think that we're certainly going to see a higher selling price for our product in the west. And is it going to be -- is it going to cover the 100% of the duties, I don't know the answer for that. But what I would like to add on this one -- and I think that I been have been making the case for Central Canada all quite a while now, and I think even the current government realized and they already supporting this position, the 2013 forest re-regime is market and the government is saying that, basically they have listened to our American friends and that they have basically -- they did a copy and paste of the U.S. Forest Service.
And the other part of the argument that I have is that in Ontario, it's the only province back in 2005 that had the ruling from the master panel that determined that Ontario producers sourcing from Ontario were not subsidized. So -- and I think that now if you look at the comments from the Ambassador, one you responded to the U.S. Senators, I think that certainly and I'm trying to see indications that there is recognition of what has happened in Central Canada, and I -- like all the other producers in Western Canada, Central Canada and Eastern Canada; and Eastern Canada for me is the Maritime [ph], I think that we are all concerned about what could happen but I think that there is a good case to be made here and I hope that we are going to -- if there is no new negotiated agreement that we can prevail at NAFTA and prevail at WTO like the last time.
So that's the way that I look at it and I think that it's certainly a rational and the principles of disposition.
Right, that's helpful Richard. I guess what I meant was more, do these come and affect -- what impact does it have for your pulp and paper operations with respect to sourcing fiber and potentially the price of fiber in Eastern Canada?
I think again, based on what happened in the previous one; the sawmills are going to continue to operate and we are going to be able to source the trips to our pulp and paper mills, and that's where the concern on this one. So I think that we're going to find a way to have that the supply needed to run on that side [ph].
Jo Ann Longworth
What are the benefits of being fully integrated.
Right, that's helpful. Thanks, that's all I have. I'll turn it over.
There are no further questions at this time. I will turn the call back over to the presenters.
Thank you for attending everybody. This concludes our call.
This concludes today's conference call. You may now disconnect.
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