domtar management discusses q3 2012 results - earnings call transcript - sap super absorbent polymer
October 25, 2012 morning 10: 00 third quarter 2012 earnings call
John D, Vice President of Corporate Communications and Investor RelationsWilliams -
Daniel Buron, chief executive officer and director-
Chief Financial Officer, Chief Accounting Officer and Senior Vice PresidentConnelly -
Agricultural Credit Securities (NYSE:USA)Inc.
Research Department Phil M. Gresh -
James Armstrong, research arm of JPMorgan Chase-
Vertical Research PartnerBill Hoffman -
Research arm anthony Pettinari-RBC Capital Markets Limited-
Benoit Laprade, Citigroup Research-
Bank of Scotland global banking and market research department
BMO Capital Market
Raymond James Limited
Albert T. , Research Department. Kabili -
Credit Suisse bank, Research DepartmentQuinn -
Michael A, Research Department of RBC Capital Market Co. , Ltd. Roxland -
Bank of America Merrill Lynch, Research Department
Gates Capital Management Limited
Ladies and gentlemen, you are welcome to attend the Domtar Corporation conference call on financial performance 2012 for the third quarter. [
This call is being recorded as a reminder.
Today is Thursday, October 25, 2012.
I want to hand over the meeting to Sir now. Pascal Bossé.
Sir, please continue. Bossé.
Pascal bosey. great.
Thank you very much, Valerie. good morning, everyone.
Welcome to our 2012 earnings call for the third quarter.
Our guest speaker today is president and CEO John Williams.
And Daniel Bloom, chief financial officer.
First, John and Daniel are ready to speak, and then we will answer the questions.
During the conference call, some supporting slides will be mentioned and you can find this presentation in the investor section of the website.
As a reminder, all statements made during a call that are not based on historical facts are forward --
Some risks and uncertainties, many of which are beyond our control.
I invite you to review the listing documents submitted by Domtar to the Securities Commission.
Finally, someU. S.
GAAP financial metrics will be introduced and discussed, and you can find reconciliation with the closest GAAP metrics on this morning's press release appendix and on our website.
In this way, I will transfer the phone to John. John D.
Thank you, Pascal.
Good Morning, everyone.
This morning, we reported revenue before the $1 program.
$87 per share and $0. 207 billion for the third quarter. Year-to-
Despite a 18% drop in average pulp prices and continued weakness in demand for communication paper, we have followed expectations well.
Now let's take a closer look at the third quarter.
Our result compared to the second quarter was good pulp and paper performance and low planned maintenance costs.
On paper, the profitability of coated free board paper remained strong, the price was flat, and the profit margin of EBITDA increased by 20%.
Stable quarterly volumeover-
In the pulp market, the current downward cycle in the global market has led to a further price reduction.
However, we announced price increases for Cork grades in October and November.
Strong pulp shipments and our sales have increased since the second quarter.
The personal care section is in line with our expectations and continues to maintain its momentum, with both sales and EBITDA growing.
Our focus on cash, working capital and working capital led to free cash flow of $0. 14 billion.
In terms of capital allocation, we are still aggressive in the repurchase program, with approximately 578,000 ordinary shares or 1 Share repurchased.
We have a 7% stake.
So to sum up the third quarter, before I transferred the phone to Daniel, the sales volume of the paper version was stable --over-quarter.
The pulp market has now started to fall from the bottom.
Personal care continues to grow with strong free cash flow.
We operate our business carefully and perform well, but we are also laying the platform and foundation for meaningful initiatives to improve the future development of our company.
With these brief comments, I will transfer the call to Daniel and I will come back with the outlook. Daniel?
Thank you, John. good morning, everyone.
Let's start with the financial highlights of this quarter in slide 4.
We posted a net income of $1 this morning.
$84 per share in the third quarter, net profit of $1.
In the second quarter of 2012, 61 per share.
According to the adjustment of the project, our income is $1.
Compared with earnings of $1 per share, $87 per share in the third quarter.
$61 a share in the second quarter.
EBITDA was $0. 207 billion before the project and $0. 202 billion in the second quarter.
Cash flows from business activities amounted to $0. 206 billion.
As a result, capital expenditure was $66 million and free cash flow was $0. 14 billion.
Go to the order change of slide 5 revenue.
Combined sales were $21 million higher than in the second quarter, mainly due to increased shipments of pulp and paper.
SG & A is $9 million lower than Q2, mainly due to amortization of certain after-sales services
Retirement benefits partially offset by Markto-
Some stock markets
Based on compensation.
Our revenue for the third quarter includes closing and restructuring costs of $2 million or $1 million.
Taxes, mainly related to the closure of the European administrative office for personal care.
Interest expenditure is $20 million, $2 million, compared to the previous quarter, due to the impact of 30-
Senior Notes issued on August.
In the third quarter, we reported tax expenditures of $22 million or $ 25%, compared with tax expenditures of $27 million or $ 31% in the previous quarter.
Now go to the cash flow statement on slide 6.
Cash flows from operating activities for the quarter were $0. 206 billion.
Capital expenditures amounted to $66 million.
This brought free cash flow to $0. 14 billion this quarter.
In this regard, work related to the conversion of our marl Road factory from high school
The batch factory to the professional and packaging factory went smoothly.
As a reminder, after this conversion and the full slope --
In the new Appleton quantity, our paper capacity for communication will be reduced effectively by about 270,000 tons.
According to our stock repurchase program, we have repurchased 578,000 ordinary shares at an average price of $75.
The total cost of cash for the quarter was about $43 million.
We have re-purchased about 8 units since the project started.
1 million ordinary shares at an average price of $80. 53.
At the end of the quarter, we still have $0. 345 billion and $35 under this project.
3 million shares, including tradable shares, have been issued.
As a final note of our cash flow, additional or dividends in our share repurchase activities have generated 66% free cash flow expenditure since the beginning of the year.
Turn to quarterly water skiing--
Waterfall slides on slide 8.
EBITDA increased by $5 million compared to the second quarter as G & A decreased by $9 million, raw material costs decreased by $7 million, and maintenance costs of $7 million were lower, the cost of shipping is lower at $3 million.
These were partially offset by lower pulp prices of $12 million, lower paper prices of $5 million, and the negative effects of foreign exchange of $3 million and lower volumes and combinations of $1 million.
Now on slide 9.
In our pulp and paper sector, sales rose 2% compared to the second quarter, down 7% from last year.
Prior to the project, operating income was $0. 103 billion and depreciation and amortization costs were $90 million.
EBITDA was $0. 193 billion before the project and $0. 184 billion in the second quarter.
Our personal care unit reported that EBITDA was $19 million before $0. 111 billion of merchandise was sold. Now our Pulp --
Our paper business on slide 10.
In this business, we estimate that EBITDA will increase before the $9 million project.
Compared with the same period last year, paper shipments increased by 7,000 tons in turn and decreased by 63,000 tons.
The average transaction price for all our paper grades was $7 lower than last quarter per ton.
In the third quarter, we filled the gap of 38,000 tons. of-
Orders were down, 15,000 tons more than in the second quarter.
Our pulp business on slide 11.
Compared with the second quarter, the pre-project EBITDA was flat at $16 million.
Pulp shipments increased by 14% in turn compared to the second quarter, and the average pulp price fell by $27 per metric ton compared to the second quarter.
Paper stocks decreased by 38,000 tons and pulp stocks increased by 15,000 tons.
Finally, you can find in Slide 13 an updated schedule of maintenance costs for the rest of the year that we plan on.
So this is the end of the Financial Review.
With this, I will transfer the phone back to John. John? John D.
Thank you, Daniel.
Although the number of paper in the third quarter is stable compared to the second quarter, we are vigilant in balancing production with customer needs and continue to work to adjust the size of the business appropriately.
On paper, we shipped 105% of our production capacity this quarter, further reducing the inventory level by 10%, while occupying 38,000 tons of market --
As we transition the factory to production specialty and wrapping paper grade, we continue to increase the number of Appleton at the marl Road plant.
In the past 12 months, despite the economic downturn, the number of our professional and packaging has increased by 10%.
Ariva's performance is well below our expectations and what we think it has potential.
Performance in the quarter fell to lower volumes and an unfavorable mix. margin grades.
We remain committed to improving our business and our strategy remains the same.
Our position in digital space and packaging is improving to increase volume and we are reducing costs from various distribution warehouses.
Since 2010, we have reduced Ariva's staff by 15% and removed about $12 million from the build.
So we continue to look for ways to improve, but there is still a lot of work to be done.
In terms of personal care, we have seen strong growth in the market and we are working to achieve the 2012 target.
We did well this year. over-
The annual growth of all channels, we have successfully advanced our organic growth plan.
We are protecting our position in the contract market and we are building for future business channels.
We also achieve maximum growth by leveraging EAM's R & D capabilities to update, higher margins and faster product segments.
Our focus remains on being a leader in adult incontinence, leveraging market growth and quality M & A opportunities to achieve higher returns by expanding our business.
About health and safety, our yearto-
The total frequency rate of the date is increased to 1.
03 to 1.
Our injuries fell by 25% last year.
Finally, with the labor agreement recently signed at the Windsor and kalupps factories, most of our labor contracts for pulp and paper mills have been renegotiated between 2014 and 2018.
Now, our vision is moving fast.
Looking forward to the fourth quarter, due to seasonal effects, we expect paper shipments to decline compared to the third quarter.
In the pulp market, we believe that prices have bottomed out and we will see some benefits from the announced increase in pulp prices.
In the medium and long term, we continue to believe that growth in China and similar growth economies will support demand for Cork pulp as consumers increase their use of paper towels and further tighten the marketbased products.
Finally, in terms of costs, we expect a slight increase in energy and chemical costs in the fourth quarter.
Thank you for your time and support.
With this, I will hand over the problem to Pascal. Pascal?
Pascal bosey. great.
Thank you very much, John.
Valerie, we're ready to answer the question. Question-and-
We are now discussing the first question.
Our first question came from Mark Connelly of CLSA. Mark W. Connelly -
Agricultural Credit Securities (USA)Inc.
Two quick things.
First of all, you spend a lot of time changing the balance of your pulp position, and it seems that you have paused in the process.
Are you happy with where this balance is now, or are you still willing to look for ideas for further development?
Then the second question is just a simple one.
In terms of personal care, not everyone has characterized the expenditure on new product development as R & D.
But how do you see how much you spend and if you need to spend more there? John D.
I think the first question is about the balance of our cork to hard wood. Is that. . . Mark W. Connelly -
Agricultural Credit Securities (USA)Inc.
The research department, to be exact. John D.
As you know, we are doing this conversion in Ashdown in order to be able to produce more Cork.
By the beginning of this year, we will start and run there.
So I think we will see the balance.
It swung a little towards the hardwood floor at that moment.
I think at the beginning-I think year-to-
Date, our price on hardwood floors is about 12%, but in the third quarter I think we are closer to 20%.
So we think this will happen over time.
As we said before, we like the grade of Cork due to tissue dynamics.
Therefore, we will do our best to maximize cork in future systems. Mark W. Connelly -
Agricultural Credit Securities (USA)Inc.
OK, this is helpful. John D.
R & D issues Williamson.
If you assume, use EAM--
This is the research and development engine of the enterprise. I really can't give you the kind of business cost.
But of course, at this time, we will use a large part of our sales for R & D work. Mark W. Connelly -
Agricultural Credit Securities (USA)Inc.
Research Department, so where do you think this number is needed for it?
Don't you have to climb up from here? John D.
William Sno, I think it should be there.
We are now discussing the next issue.
The question comes from Phil Gresh of JPMorgan Chase. Phil M. Gresh -
JPMorgan Chase, the research department on the bridge since the fourth quarterto-
SG & A saved $9 million in the first quarter, which is all the permanent savings we should consider, or, just because of the hard fundamentals, some are temporary and maybe some will come back?
Daniel BuronDaniel Buron talks here
In my comments, I mentioned that this reduction is related to some post-amortization
So this decline is almost entirely due to this.
This is a type--
One-time event type.
Therefore, SG & A, which is close to $90 million per quarter, is A good agent for the future. Phil M. Gresh -
The research department of JPMorgan Chase has already done it.
Can you then talk about the current trends in paper business?
Obviously, the volume of transactions in recent months is slightly weaker than normal.
What do you think is driving this all?
What do you think of the fourth quarter?
Related to this, how do you see the need to continue to spend the same amount or more downtime now relative to your inventory status? John D.
I mean, Phil, I think it's hard to see the catalyst for volume.
So, as we said, we expect seasonal declines in the fourth quarter as we expected.
I mean, there will be more life every now and then a little more quiet.
So I think that's what we think.
The trend of long-term decline remains.
There will be quarters when it's worse, and there will be quarters when it's better.
As we said before, we are very committed to ensuring the balance of our supply chain.
So we will take action if we think further downtime is needed.
Obviously, if the downtime is too long, we have to consider turning off and re-adjusting the use.
As I said before, when we need it, when we need it, we will make a plan according to these routes, and we will take action. Phil M. Gresh -
Research Department, JPMorgan Chase.
If you have to turn off a paper machine with the remaining hard wood capacity on your left, this is something we should keep thinking about, as you did in Ashdown, could it be converted to Cork? John D.
William syes, I mean, if the cork is competitive for you, it obviously depends on the fiber balance of the local forestry, which is definitely in Ashdown. So it's a mill-by-
Phil, depending on the wooden basket, you can choose the mill.
Now, we're going to start the next question with James Armstrong from vertical research.
Vertical Research Partner
The first question is a little follow-up. up.
With widespread weakness in coating-free board demand, do you think the industry as a whole should start to come up with additional capabilities to tighten the market? John D.
It is impossible for James Williams to answer this question.
I can only really talk about us.
As I said before, it is clear that we are ready to make such decisions in our own supply chain.
If you look at it, I can add Daniel Broff. -
In the third quarter, we reduced our inventory by 38,000 tons and our inventory by 38,000 tons. of-order downtime.
So you can assume that our system is more or less full without reducing inventory.
Our Appleton deal is accelerating.
Therefore, we are confident in balanced capacity and demand.
Vertical Research Partner
This is very helpful.
In terms of paper allocation, switch gears a little bit and it still seems to be struggling.
Can you help us understand the plans for the future? Will it be a --basically a --
Will it run around these rates in the foreseeable future? Or how can we restore profitability in this area? John D.
This is a very good question.
I mean, there's no doubt that we think it's a path to the market.
We think this is an inherent low.
James, go back.
If we can do 1%, 1.
I think it's a 5% return on sales. -
We think we did a good job. It's a low-Margin business.
So the two things we have to do are-
It has to be ensured that this is a safe route to the Domtar ton market, which is actually the case.
We have to make this top business grow, so I think we actually developed a very powerful digital printing project, which is a good marketing project and we are building a business.
We now have a stronger sales leadership that helps us drive the packaging business.
We must continue to reduce the cost line.
This is two things that we have to continue to do, because this is a very disappointing number at this point.
Let's now answer the next question from Bill Hoffman from RBC Capital Markets. Bill Hoffman -
John, research arm of RBC Capital Markets LLC, I was just wondering if you could talk about things like strategic acquisitions, just wondering where the personal care business is, is it appropriate?
I just want to know what you see in this regard?
The second question is, as far as the Appleton deal is concerned, I just want to know what the timing is?
Also, if you see other similar opportunities in the North American industry over the next period of time? John D.
William syes, yes.
Let's take care of ourselves. Globally --
So I will be very specific.
I mean, it's clear that adult incontinence is part of the personal care industry.
The adult incontinence business is about $8 billion and $8.
The global business is 5 billion, up 5%, and the profit margin is quite good.
About half of the industry is owned by private equity or the sector of large businesses.
We see an opportunity that we can get from the business we have today as we grow.
Our EBITDA today runs around $75 million.
We think we can do this in 3 to 5 years and we can double it.
We are very clear that we are looking for an EBITDA of $0. 3 billion to $0. 5 billion from the business.
So if you do the calculations and you do the GAAP, you can clearly see the M & A we need.
We think this is feasible for us, so we will, frankly, continue to move along this route.
Can this answer your question? Bill Hoffman -
The research department of RBC Capital Market Co. , Ltd. is. John D. WilliamsOkay.
On the Appleton business, I think the third quarter was running at about 34,000 tons.
We think it's more than that if it's the full rate.
So it was built very well.
We're still doing some experiments.
Therefore, marl Road has not been fully utilized in these grades, but may be available for the next 6 to 8 months [ph]
When we spend capital
I think there are very few opportunities in other opportunities.
Because obviously you need someone who does something else with the substrate and they're not much.
So we were looking for it all the time but I was hoping for it on that trip but I haven't arrived yet. Bill Hoffman -
Research Department of RBC Capital Market Co. , Ltd.
So I guess, with regard to your paper mill, the demand here is down over time and they are more likely to close and/or convert another product themselves? John D.
I think it depends.
We have been looking at other scores.
We always scan the horizon to see where our skills match.
I think we need something to do to avoid the end.
If you choose Plymouth, we know that we have a globally competitive factory with furniture, we know that we have globally competitive products, and we like the dynamics of the market.
That's how we reposition.
The next question comes from Anthony pitinari of Citibank.
The research section of Citigroup Inc. on professional and packaging papers, I think you said that in the otherwise rather weak market, you saw a 10% increase in sales.
I guess on the last question, what is the sustainable growth rate of professional and packaging paper business if communications documents, if we can think of this as a long-term decline of 3% to 4%? John D.
I mean, if you already have what you have, then it's an industry with a GDP growth of 2% to 3% a year.
It is clear that we are seeing more than that because our base business is bringing us growth and we are increasing Appleton growth so you will see our level of growth.
The rights of Citigroup's research department.
But on a sustainable basis, 2% 3%? John D.
Can you then remind us of the differences between thermal paper, safety paper, wrapping paper on the classification of specialty and wrapping paper? John D.
William Si can't.
I can give you a macro number which is basically 3 if you use our system.
4, then about 450,000,500,000 have technical and professional dynamics, and the rest have the dynamics of printing paper.
Is this what you're looking?
Okay, Citigroup research. Yes --
No, this is very helpful.
Then I guess at the end, if you could comment on the dynamics you are currently seeing on the North American fluff market?
I think there was a competitor earlier today talking about buying capacity a little faster than they originally expected.
Do you see that other pulp markets seem to be getting better?
After some weakness earlier this year, have you seen the fluff improve? John D.
William syes, we see a slightly better implementation price.
In fact, this is not the real price increase.
What's more is mixed drive and geography drive.
Of course, the Rayonier capacity comes out when the capacity comes out, so this may balance 2.
Of course, as you may know, 20% of the world's SAP explosions took place, so these are high water absorbent polymers that enter diapers and artificial intelligence, which have been very much from the market. -
A terrible thing happened in Japan.
One of the alternatives is that people put in more fluff and less SAP, so it would be very interesting to see this as this situation develops and the facts emerge, whether or not this really drives the use of some fluff pulp, it therefore drives the price a little.
It's too early to say.
Our next question comes from Benoit Laprade at Scotia Bank. Lapard-
Daniel, global banking and market research division, Scotiabank, you mentioned SG & A $90 million per quarter.
I'm just wondering if at this time you can provide some guidance for next year in terms of capital expenditures, interest depreciation and tax rates?
It's a bit early for Daniel BuronIt to share this, Benoit, but I think our guidance on capital expenditures this year is £ 40 to £ 60.
So I think this is a good job premise.
But we will give you more accurate information on the fourth quarter earnings call.
Depreciation should not be changed.
Interest rates for the quarter were $20 million.
We still don't have a full run rate of 30-
We 've been issuing bonds for a year, plus a couple, so you might see a $22 million quarter in 2013.
But, again, we will provide more accurate information, just like our practice, in the fourth quarter earnings call, we will give you what we think is important for you to understand 2013 of the business
The next question comes from Stephen Atkinson of BMO.
The BMO capital market can question the paper towel business, and my understanding is that you are expanding geographically in Europe.
I think the same is true in North America.
First, can you talk about the situation?
Second, are there new products and product development? John D.
Is William syou referring to the personal care business?
Yes, the BMO Capital Market is OK. Sorry, yes. John D.
Don't worry about Williams.
I just want to be clear so that I can answer the question correctly.
Yes, I mean, frankly, I don't want to go into the details for some competitive reason.
But there are also product areas. -
There are two ways to look at business.
There are product areas and channels.
So most of our business is out of town. from-
You can go home if you like.
Therefore, the institutional channels that account for about 62% of the market are very concerned about some heavy inco [ph]
Take care of the patient.
What is happening now is that home care is part of this market. e.
Places where people are taken care of at home are growing.
There are different distribution needs.
It has different product requirements.
So, we work in that field.
Obviously the other area is retail and we see an opportunity to get retail distribution for private labels or brands, where we are very active.
This is mainly for products with mild incontinence.
So, we have to fill out our scope in that area.
So that's two drivers of the business. Does that help?
Are you clear enough?
The BMO capital market is also good.
The next question comes from David quizada of Raymond James. David Quezada -
Raymond James Limited
My question is the cash return from future shareholders in addition to the existing repurchase plan.
After that, is it still possible for the plan to seek additional authorization from the board? And just talk --
In general, think about the dividend, will some of your instalments be added at some point? John D.
Thank you very much for your question.
I mean, it's time for us to start involving the board in these discussions.
I think all I can do at this point is to reiterate our commitment.
Our commitment is very clear and we will return most of our free cash to our shareholders, which we insist on.
So, if you want, the problem is the balance between the fixed cost of the dividend and the stock repurchase.
I think we have made it quite clear that we know that our current rate of return is slightly below average.
So one should expect that we will increase production over time.
The next question comes from Al Kabili of Credit Suisse. Albert T. Kabili -
Credit Suisse, the research arm, in terms of capital allocation, in terms of stock repurchases, John, the percentage of this year's repurchases, as a percentage of free cash flow, is a little behind last year.
I was wondering if you could fix this.
Is this just the time?
Maybe you can fix it a little. John D.
I think this is really the time.
So to be frank, I don't think there is any cunning plan behind this.
This is really the time.
I mean, we have committed to completing the stock repurchase if you like.
We still have hundreds of millions of people to go, and we will try to get through it. Albert T. Kabili -
Credit Suisse bank, Research Department, OK. That's helpful.
Secondly, I think, if you can comment, it has something to do with Appleton. -
You mentioned these trials, but in terms of the current returns, what is the return and efficiency of the business and the profit is piling up compared to your expectations? John D.
In terms of the actual running speed, William sit is a bit early, because we have done a lot of experiments, so there is a lot of machine time to some extent.
I mean, when we actually start running, that's what we expect per ton.
We expect gross margin per ton.
Over time because as you know we have a cost
Plus the arrangement with Appleton, it will stay near these levels.
But in terms of efficiency, we give-
They take half. We take half.
So if we can do better and better, we can increase our profits over time.
Of course, I think another problem is that it is a growing market.
The market is growing by 4% or 5% per year.
So, if all goes well, we will grow from those tons. Albert T. Kabili -
Credit Suisse of the Research Department understands.
So you're still thinking about similar returns, and there may be more returns going up next year-
Volume, right? John D.
Williams, you see. Albert T. Kabili -
Sounds like the research arm of Credit Suisse.
Okay, and finally--
I think the last question has to do with maintenance costs.
Their prices were slightly lower this quarter.
I think the outlook for the fourth quarter is the opposite of what you thought last quarter, and I was wondering what pushed this forward?
Is this a level of sustainable development? John D.
Well, I think it's more sometimes-you-get-lucky question.
Obviously you have done a good analysis when you grind it down.
But sometimes you find other problems when you are really in it.
I think we found fewer problems in the third quarter than we expected.
So we get a little bit of benefit.
In section 4, I think we re-calibrate millions a little, but not more.
In general, I mean, from an annualized point of view, it's about the right feeling we have about the assets we have to make sure we keep them, like we should.
The next question comes from Paul Quinn of RBC Capital Markets. Paul C. Quinn -
RBC Capital Markets, LLC, Research divijohn, you give a good color in the pulp market.
I'm just wondering if the other department you're in sees [ability]indiscernible]
What do you expect?
You characterized it as the bottom of the price.
But do you expect good results in the future? John D.
I mean, I can answer [ph]
What did we do?
You can see what we did on Cork and the price has gone up several times in the past few weeks.
So I think-
Let's take a look, but I mean, it looks like it's going to stick to it.
I mean, people are nervous about the tariff Bay issue, but we will see it.
So I think we are pretty confident in the way we go, but it's hard to see-
How these numbers will affect the market.
We are a very small player.
Finally, we got what we got on the hardwood floor. Paul C. Quinn -
RBC Capital Market Co. , Ltd. research department.
You already have a lot of initiatives in terms of innovation.
I was just wondering if you could update us on the status of these projects and any changes to future plans? John D.
William syes, of course.
In the CelluForce business, we have reached 30 development agreements.
We should have the first real order in the next 3 to 6 months.
We are very punctual on lignboost.
We are doing this work and there is actually a very powerful pipeline.
Obviously we are doing a lot of sampling as we speak.
So actually, I have a lot of confidence in that piece of wood.
We will get the lead.
We have about 25,000 tons of wood to sell.
It will be--
Of course, we will increase our productivity in the factory.
So, I am very, very positive.
In fact, the trick for us is to make sure we get the most money per ton.
And then we have a FAS paralysis program with Patel [in Drayton]ph].
Early signs are also good.
As I said before, we have a very disciplined gate process as these opportunities come along.
So we might do it if we see it again.
We won't bet on the store, though.
So, I think, I think, I want to see if we can create value. Does that help? Paul C. Quinn -
So is the research department of RBC Capital Markets Limited. Operator[
We are now discussing the next issue.
The next question comes from Michael Roxland of Bank of America Merrill Lynch. Michael A. Roxland -
Bank of America Merrill Lynch, Research Department, this is Mike roxlan from George Stafford.
It's just a very quick question.
If possible, I would like to know if you can comment on the pulp demand you have seen in Asia and other markets.
What is the real take-out in the pulp and what is the inventory? John D.
Unless you're really looking for a customer, it's almost impossible to answer.
When we go to the customer, they obviously have a lot more stock than we have here.
But given the current behavior and organizational capacity, we are really providing products for those large organization manufacturers.
Most of our business is there.
In fact, we feel good about it at this time.
If you look at global stocks, you will see 27 days.
Assume the balance is about 30 days.
So the current dynamics show that there are runways in the industry. Michael A. Roxland -
Bank of America Merrill Lynch research found you.
So you feel good about the potential needs, especially considering the pulp-
The cost of the organization is trailing there, but there are also some--
Considering that it is also possible to increase inventory levels? John D.
That's what I think, William syes.
It's actually very difficult to track it all the way.
You go to a paper towel manufacturer in China, we went to a number recently, there are color palettes and color palettes, I mean, at least 3 months of stock is considered normal, I want to say, because of the supply chain.
We will now start the next question from Mark Friedman of Gates capital.
Jeffrey Lin Gates
Gates Capital Management Limited
Actually Jeff Gates.
I have two questions.
First of all, when is the transaction you announced on June to sell water and electricity assets expected to end?
How much EBITDA will you lose?
Secondly, OPEC received $9 million in revenue. which business is this?
So the first question, the deal, we expect it to end in the fourth quarter.
Obviously there is a closing condition [indiscernible]
We can't control the demand, but our best guess is that it will end in the fourth quarter. The EBITDA --
I mean, this is a business that is more suitable for future generation than the current generation.
So EBITDA will--
This means nothing to us.
The second question, PRIBs [ph]
Are all linked to the pulp and paper business.
Jeffrey Lin Gates
Gates Capital Management Limited
What is the difference between pulp and paper?
This is impossible.
I mean, we are doing these two products in many factories.
So splitting is not feasible,--
During that time
Jeffrey Lin Gates
Gates Capital Management Limited
But when you show the pulp and paper separately in the presentation, you must have done some splitting?
Daniel bronnes, we did it.
So I have to come back. I think --as normal, we --
I mean, there are more employees in our paper industry. -
The number of people related, the largest share of which may be 80-
Rules 20, 80 paper, 20 pulp.
We have a follow-up operator.
Question from Phil Gresh of JPMorgan Chase. Phil M. Gresh -
JPMorgan Chase, I just want to follow up with the research department-
Upward, just looking back on the paper side of business over the past few years.
Your EBITDA is $235 per ton and $240 per ton.
This year, it's kind of like--
Came down a little from there.
It is clear that the price increase in spring has not really come true.
So I guess I'm a little wondering if this new level is slightly lower than the peak level we saw in 2010 and 2011, or you 'd say, it's just a more moderate year, the kind we 've seen before, do you think this will be a more normal return for the business to move forward? John D.
This is a good question, Phil.
I mean, we see it as a more moderate year.
I mean, you have to think about the impact of the lack. of-
There is order downtime on these numbers.
I mean, the price increase is a concept, not a reality.
So, I mean, putting all of this together, in the case of worse demand than in previous years, it's a weak year.
So in a way, I don't think it's the future.
I think it's a tough year, there's a lot of uncertainty in the economy, there's a couple of straw everywhere.
Of course, this lackof-
Order downtime does drive up profits for coaches and horses if you want.
If that helps you, that's why? Phil M. Gresh -
The research arm of JPMorgan Chase did help.
There is another question.
I mean, obviously some of your end customers here, Staples and others, who are now closing a fair number of stores.
Obviously, they sell more than just paper.
But is this more relevant to what you think is happening at the end customer level?
Secondly, if we see a merger between these retailers, what do you think will be the impact on your business? John D.
Yes, they think life is hard, I think.
But in fact, we are largely the main supplier of their wholesale business rather than retail business.
So, in fact, they have--
I forgot the exact number, but there are 3,000 sales people on the road selling--
In fact, we are very satisfied with this partnership at this time.
I mean, the merge problem, of course, was tried many months ago but it didn't happen.
You ask yourself, is there room for two people instead of three?
But at this point in time, what might happen if that happens, I mean, pure speculation.
I can't really guess that.
There is no further problem with the operator at this time.
Pascal bosey. great.
Thank you very much, Valerie.
At today's conference call, I would like to thank all of our participants.
I think we'll come back and talk to you--
We will release fourth-quarter results in January.
Thank you very much. you all had a wonderful day.
Ladies and gentlemen, this is the end of today's conference call.
Thank you for your participation.
You can now disconnect your line and have a great day.