Cascades Inc
TSX:CAS
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Cascades Inc
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Good morning. My name is Cecily and I will be your conference operator today. At this time, I would like to welcome everyone to the Cascade Fourth Quarter 2018 Financial Results Conference Call. All lines are currently in listen-only mode. After the speakers' remarks, there will be a question-and-answer session.I will now pass the call to Jennifer Aitken, Director of Investor Relations for Cascades. Ms. Aitken, you may begin your conference.
Thank you, operator. Good morning, everyone, and thank you for joining our fourth quarter 2018 financial results conference call. The speakers this morning will be Mario Plourde, President and CEO; Allan Hogg, CFO; Charles Malo, President and COO of the Containerboard Packaging Group; Luc Langevin, President and COO of the Specialty Products Group; and Jean Jobin, President and COO of the Tissue Papers Group.We will begin the call with discussions regarding our North American operations. Mario will then discuss results from Boxboard Europe, followed by 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 interim report released on February 14 can be viewed on Reno'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 in the investor presentation and the press release also include datas that are not measures of performance under IFRS. Please refer to our accompanying Q4 2018 investor presentation for details. This presentation along with our fourth quarter press release can be found on the Investors section of our website.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 call us after the session.I will now turn the call over to our CEO. Mario?
Thank you, Jennifer, and good morning everyone. On an adjusted per share basis, we generated breakeven earnings in the fourth quarter. This compare to earnings per share of CAD 0.14 in 2017 and CAD 0.40 in the previous quarter. Again on an adjusted basis, EBITDA of CAD 113 million increased 8% over the last year and decreased 18% from the third quarter. On a consolidated basis, the EBITDA margin reached 9.4% in Q4.These results were largely driven by good performance from our Containerboard and European Boxboard segment. These were offset by softer result in Specialty Products and disappointing result in Tissue Paper. We will provide more context about the performance of each of our business segment later in the call.Let me briefly touch on our Tissue Paper business. As you all know, this segment faced and continue to face significant industry-wide headwinds that includes the elevated raw material costs, pricing pressure, higher logistic costs and important capacity addition. Cascade has seen the follow-up of these factor translate into significant margin erosion. It should be said that the geographic position and quality of some of our equipment, particularly our converting assets in the U.S. is not optimal in terms of our supply chain execution.On this last point, we expect the investment we are making in the new state-of-the-art equipment will position us for the long-term to better serve our customer. More broadly speaking, we are currently completing an extensive review and have begun implementing step to reverse this trend in our Tissue business.On the KPI front, fourth quarter shipment increased by 2% from Q3. This increase was driven by Europe, where shipments were up almost 13% sequentially due to its recent acquisition. Shipment level decreased in all of our North American operation, which is in line with usual seasonal change in demand. Our fourth quarter capacity utilization rate of 90% decreased by a marginal 1% sequentially and compared to last year.On the raw material side, the average Q4 index price for OCC brown paper grade was down by a significant 22% year-over-year and was unchanged compared to Q3. Conversely, the average Q4 price of the sorted office paper, white recycled grade, which makes up for the large part of our raw material use in tissue, increased by 25% year-over-year but begun to show signs of easing as it was down 3% compared to Q3. The year-over-year and sequential performance of our Tissue segment was also impacted by the virgin pulp pricing, which continue to increase both sequentially and compared to the prior year levels.I will now pass the call to Allan, who will discuss the main highlights of our fourth quarter results performance. Allan?
Yes. Thank you, Mario, and good morning. I will begin with sales detail on Slides 10 and 11 of our fourth quarter conference call presentation, which can be found in the Investors section of our website. Please note that all reconciliation of non-IFRS measures are also available on our website. On a year-over-year basis, fourth quarter sales increased by CAD 114 million or 11%. This reflects the improvements in pricing and sales mix in all of our segments and favorable exchange rate impacts.Acquisitions in the last 12 months in the Containerboard, Specialty Products and Boxboard Europe segment added CAD 65 million to sales in Q4. Sequentially, Q4 sales increased by a marginal CAD 21 million or 2% as volumes were lower in Boxboard Europe and Tissue. The acquisitions completed in Q4 in Europe in Specialty Products added CAD 46 million in sales in the last two months of the quarter.Moving now to operating income and adjusted EBITDA. As highlighted on Slide 12, Q4 adjusted EBITDA of CAD 113 million increased CAD 8 million from prior year levels. The Presidents will provide more details regarding performances of their respective segments. On a consolidated basis, results benefited from a stronger performance from our Containerboard segment. These were partially offset by lower results from the Tissue segment and a marginally lower contribution from Specialty Products and Corporate activities.The change in depreciation expense reflects business acquisition and new equipment startups in the past year. Sequentially, Q4 adjusted EBITDA decreased by CAD 24 million. This was largely the result of our tissue performance and also from a lower contribution of our Containerboard activities.Slide 14 and 15 illustrate the year-over-year and sequential variance of our Q4 earnings per share and the details of the specific items that affected our quarterly results. As reported, results per share were a loss of CAD 0.69 in the fourth quarter compared to reported earnings per share of CAD 0.60 last year. Both periods included specific items, which I will explain in a few minutes.On an adjusted basis, earnings per share decreased by CAD 0.14 per share as a result of lower operating income and a higher effective tax rate. As was the case in recent quarters, net earnings attributable to non-controlling interests in Greenpac and Reno De Medici were higher compared to last year, thus reducing our share of the net results.Slide 16 and 17 illustrate the specific items recorded during the quarter that impacted operating income and net earnings. Our fourth quarter results included an impairment charge of CAD 75 million or CAD 0.60 per share on certain of our U.S. Tissue assets, following a review of their recovery there. Last year, we recorded a CAD 14 million loss related to the early repurchase of U.S. denominated long-term debt and a CAD 57 million income tax gain resulting mainly from the U.S. tax reform announced at the end of 2017.Fourth quarter cash flow from operation increased by CAD 12 million year-over-year to CAD 89 million. Adjusted free cash flow decreased by CAD 7 million as a result of higher CapEx level in 2018 and dividend paid to minority shareholders in Greenpac. For the full year, our adjusted free cash flow was positive at CAD 54 million.Moving now to our net debt reconciliation on Slide 19. Our net debt increased 12% in Q4 as a result of business acquisitions in Europe and specialty products and also A less favorable exchange rate at the end of December, which increased debt by CAD 78 million. On a pro forma basis to include our recent business acquisition, our net debt leverage ratio stood at 3.5x at the end of the fourth quarter compared to 3.2x at the end of the third quarter.On Page 20 and 21, we have detailed capital investments and business acquisitions for recent years and have included some information on the important projects realized in 2018. The main CapEx this year were related to the end of construction of the Piscataway converting plant in New Jersey, the start of the modernization plant in tissue and the acquisition of the White Birch, Bear Island asset in Virginia.For 2019 as detailed on Slide 22, our expected CapEx will be between CAD 330 million to CAD 400 million and may vary depending on market conditions, the final approval of the Bear Island conversion project and the performance of our Tissue business. On Page 23, we have provided an early assessment of the impact of the new accounting rules on lease accounting. The new rules came into effect on January 1 of 2019 and will increase our debt by approximately CAD 80 million and our EBITDA by an estimate of CAD 23 million. This has no impact on our cash flow profile. I will note that these numbers are not final and may change up on final reviewing.For additional details regarding our fourth quarter performance on a segmented basis, please refer to Slides 25 to 30 of the presentation while our near-term outlook is detailed on Slide 32.Thank you for your attention, I will now pass the call to Charles, who will discuss the fourth quarter results of our Containerboard Packaging.
Good morning, everyone, and thank you. Thank you, Allan. On a sequential basis, the fourth quarter shipments reached 368,000 short tons in the Containerboard group, representing stable shipments compared to the previous quarter. The paper shipments to external customers decreased by 7,000 short tons or 3.7% from the previous quarter. Consequently, our integration rate increased by 2% to reach 58% in the fourth quarter.Accordingly. when including the paper sold of our associated company, our overall Q4 integration rate remains stable at 78%. On the productivity front, our Q4 operating rate of 92.3% increased by 1% compared to Q3.In the converting sector, the shipments increased by 4% sequentially when expressed in millions of square feet. This outperformed both the Canadian and the U.S, market. With regards to pricing, our average selling price remains stable on the sequential basis. On a segmented basis, our average containerboard selling price denominated in Canadian dollar increased by CAD 4 per short ton, while the average selling price of our corrugated product sector decreased by CAD 10 per short ton in Canadian dollar, mainly due to the seasonal specialty products dip in Q4. Overall, the stable pricing is mainly the consequences of favorable product sales mix and also 1% depreciation of the Canadian dollar. During the fourth quarter, the Containerboard group generated an EBITDA of CAD 111 million, which translates into a margin of 23%. This performance compares to a margin of 25% in the third quarter and 17% in the same quarter of last year, the EBITDA generated in Q4 2018 represent a record for a fourth quarter.The sequential decrease in our results was largely driven by higher maintenance costs following the 15 days of scheduled downtime, representing 14,000 tons in our mills for major maintenance and to complete major capital projects. When combined with higher labor costs, these higher costs negatively impacted profitability by CAD 4 million in the fourth quarter. Also the average selling price excluding the depreciation of the Canadian dollar reduced profitability by CAD 3 million. Before discussing the short-term outlook, let me touch on our Bear Island project in Virginia and the ramp up of our Piscataway plant in New Jersey.As of today, all the steps in the Bear Island project are moving in the right direction. As we mentioned at the time of the acquisition announcement, we will provide additional details of those projects once plants have been finalized and approved by the Board of Directors. Concerning our Piscataway corrugated plant in New Jersey. I'm pleased to report that the ramp-up curve is ahead of expectation as we speak and we have achieved a positive EBITDA contribution in Q4.Finally, we remain cautiously optimistic in terms of our near-term outlook as we expect demand levels to be in line with historical seasonal trends during the first quarter. Our results should continue to benefit from favorable OCC prices but on a downside a CAD 20 per ton price decrease for MEDIUM was announced in January in the market. This is expected to begin impacting our results at the beginning of March, we estimate the impact to be approximately CAD 9 million for 2019.I would also note that we are anticipating common maintenance of downtime in our mills during the first quarter of 2019. Thank you for your attention and I will now ask Mario to provide you with an overview of Boxboard activity in Europe. Mario.
Thank you, Charles. The European Boxboard operation generated good results in Q4, sales increased 16% compared to prior year's level driven by a higher average selling price, lower raw material prices and the contribution of PAC Services and Barcelona Cartonboard. On a year-over-year basis, the average Q4 selling price and recycled boxboard increased by EUR 30 or 6%, reflecting price increases and the addition of Barcelona.The average Q4 selling and virgin boxboard activities increased by EUR 24 or 3%, EBITDA increased 5% from prior year levels, driven by higher selling price and lower raw material costs, partially offset by higher energy costs. On a sequential basis, the 16% increase in sales in Canadian dollar largely reflects the addition of the mill in Spain. Adjusted EBITDA increased marginally by CAD 1 million or 5% from Q3 levels. For the near terms, in addition to the acquisition completed in 2018, macroeconomic and political factors supported a moderately positive near-term outlook. Specifically, lower demand is expected to be counterbalanced by expectation of slightly lower energy costs and the implementation of price increases in virgin boxboard, offset by pricing pressure in the recycled boxboard business. I will pass the call over to Luc, who will provide you with an overview of Specialty Products.
Thank you, Mario. Good morning. For the fourth quarter of 2018, the Specialty Products group reported sales of CAD 133 million, 5% above Q3 levels. The higher sales is the result of the early December 2015 acquisition of 2 molded pulp protective packaging manufacturing [INR] and the majority interest in a distribution company specializing in egg packaging.The [sales] from the newly acquired businesses more than offset the lower seasonal volumes recorded in Europe and in our consumer product packaging activities. Price, product mix and FX were mostly stable during the period. Our fourth quarter EBITDA was slightly below expectations decreasing to CAD 10 million from CAD 14 million in Q3.The combined impact of the bankruptcy of two of our customers, lower spreads in our recovery operation and higher maintenance costs during the quarter largely explain this variance. Looking at performance on the segmented basis, the industrial packaging sub-segment EBITDA in Q4 was slightly below that of Q3. The higher spreads in our URB activity were not sufficient to offset the impact [ bank ] debt, higher maintenance costs in our two mills, lower spread and seasonal volume in Europe. The EBITDA of our consumer product packaging segment was also sequentially lower. The bankruptcy of a large [ foam ] customer and lower seasonal volumes in the flexible market explain most of the decline.Finally, despite higher sequential volume, results from our recovery sub-segment was impacted by lower spreads, to a lesser degree higher maintenance and fixed costs also negatively impacted results in the last three months of the year. Regarding the near-term outlook, our recovery sub-segment performance will be negatively impacted in Q1 by the decline in recent recovered paper prices.Both OCC and SOP have recorded price declines of USD 10 and USD 20 per ton respectively since last December. The first quarter of the year is also typically slower in terms of volumes.For [ pulp ] rates, while Chinese licenses have been [ greater ], the exports to this destination have been quieter in recent months, although export destination seems to be [ piling ]. This is beneficial for our paper mill even during periods such as February when generation is typically at the lowest, and despite the challenging weather conditions we're going through this winter.The supply for white grades has also been solid and stable with lower export activity. On the virgin fiber front, the North American market remains well balanced, inventory having recently increased and the material is generally readily available.Moving to our other business area, spreads are decent for our packaging activity as we are entering into favorable quarters of demand for our converting activity. We are actively working at integrating our recent acquisition in the molded pulp segment and the egg market. We are pleased with the enthusiasm shown by new colleagues in the Midwest and these new entities will contribute positively to the next quarter results. And despite the difficult market for our recovery activity, we expect our Q1 results to be sequentially better and exceed our Q1 2018 performance.Thank you for your attention. I will now pass the call to Jean who will present the results for our Tissue Paper Group.
Thank you, Luc. Good morning, everyone. The tissue results for the fourth quarter reflect the usual sales seasonality, ongoing challenging market conditions, and [ hysterically ] high pricing of both recycled and virgin white fibers. Performance was also impacted by distribution disruptions following a fire at the Wagram, North Carolina facility, where operations were just beginning to recover from the impact of Hurricane Florence. These unplanned situations required us to adjust production and logistics to minimize the impact on our service levels.This resulted in higher logistics and external subcontracting costs during the quarter. Additionally, higher energy expenses following a gas pipeline failure on the West Coast in October and operational problems impacted the performance of the St. Helens tissue mill in Oregon. These operational difficulties negatively affected the performance of the Scappoose, Oregon converting facility and the efficiency of our Kingman, Arizona plant as both are supplied by St. Helens. An action plan is being implemented and we are expecting to see improvements in the near to mid-term.Moving now to our fourth quarter results. Given the circumstances just discussed, the higher fiber price and lower seasonal volumes, fourth quarter EBITDA was a loss of CAD 8 million or a negative margin of 2%. This compares to a positive CAD 5 million EBITDA or 2% margin in Q3. Historically, the fourth quarter is one of the weakest due to the lower seasonal volume and year-end shutdowns. Also these circumstances resulted in our quarterly result decreasing significantly from last year, where we generated EBITDA of CAD 12 million and a margin of 4%.On the volume side., total shipments increased by 1% year-over-year. Shipments of converted products grew by double digit compared to last year, registering an increase of 11% due to higher demand in our targeted market segments. However, external shipments of parent rolls decreased by 21% compared to last year, mainly due to a higher integration and productivity challenge at the St. Helens mill in Oregon.The volume levels remain very positive for converted product and this is mainly due to long-term contract agreement with key strategic customers that were signed during 2018. In order to supply this volume, some additional subcontracting was required on a short-term basis, which has impacted our profitability.Our capital investment plan is aimed at addressing this situation amongst other things. In terms of pricing, the average selling price increased by 11% year-over-year. This reflects the previously announced price increases, the higher proportion of converted products in our overall shipments and the depreciation of the Canadian dollar.On a sequential basis, our quarterly average selling price increased by 3% for the same reasons. The impact of the price increase announced in all markets during the second half of 2018 have begun to flow through our results and were positive to overall profitability.On an operational basis, the higher raw material costs remain a headwind, as did a less favorable mix of white fiber use during the quarter. This increase negatively impacted our result by CAD 18 million year-over-year. On a sequential basis, the increase in white fiber and pulp price did ease but nonetheless continue to negatively impact our result by CAD 4 million on a net basis.As we have mentioned in the past, current challenges in the North American transportation network and higher fuel costs remain one of the driving factor behind the significant increase in our cost levels. To this end, transportation and logistics costs negatively impacted our result by CAD 10 million year-over-year. This impact is also the result of the fact that we have to reallocate production volumes across our network to avoid supply disruptions following Hurricane Florence and the fire at our Wagram plant. Combined, the hurricane, the fire, and the gas pipeline negatively impacted fourth quarter result by approximately CAD 5 million.Looking briefly at our West Coast operations, I would note that we continue to make good progress in terms of market penetration by gaining volume. Operational problems continue to be an issue at our St. Helens mill, however, an action plan is now in place and we expect to be able to achieve better results over the coming months.This morning, we announced the definitive closure of our tissue paper machines located in Whitby and Scarborough in Ontario. The leases for these two plants expire on August 27, 2019, and will not be renewed. The end date of the production remain to be determined. In total, the sites produce 44,000 tons of tissue paper annually and employ 68 workers. Their unprofitability and the current market condition have convinced us that it is better to source externally to supply our internal needs. Half of the production was for us and half was sold to the open market.Looking more globally for our market, we expect condition will remain challenging in the near term, however, we're expecting white fiber prices and transportation cost to be more stable to slightly down, which will certainly help the overall profitability. With the volume gain last year, we need to optimize how we allocate our production in order to reduce logistical costs.Thank you. And I will now turn the call back to Mario for a conclusion. Mario
Thank you, Jean. I will keep my concluding remarks to a minimum so that we can open the call to questions. Our outlook for the Tissue segment remain muted for the near term, I would like to emphasize that we are resolutely focused on resolving the challenge that this segment is facing and are currently implementing action to realize performance on this segment with our targeted profitability levels. Overall, our near-term outlook is cautiously optimistic. Market dynamics remain fair for Containerboard within the context of seasonal first quarter softness and a slight decrease in the index price for MEDIUM. That said, the slightly lower OCC pricing is positive for this segment. European Boxboard is expected to benefit from the acquisition completed in 2018 in addition to a slight easing of the energy costs.Near-term expectations for the specialty products are positive, a reflection of the recent acquisition of U.S. molded pulp assets and a more favorable raw material pricing trend for this segment. Before opening the call to questions, I would like to thank all of our employees and management team for their ongoing dedication and hard work and their important contribution to our record annual performance in terms of adjusted EBITDA and Health & Safety in 2018.On that note, I will now be happy to answer your questions. Operator.
[Foreign Language] [Operator Instructions] Your first question comes from the line of Roshni Luthra.
Yeah, hi, good morning. So I think, a question for you first regarding tissue, what impact do you expect the elimination of the [ mill ] in New Jersey to have on SOP prices, and are you seeing signs that the [ Nine ] Fairmont mill is moving away from SOP?
The first part of your question, obviously, they were using a lot of SOP there. So it should have an impact down on SOP prices. We have seen some pressure down on this, of course, so maybe Luc has something to add on it.
With regard to Nine Dragons, obviously, what we hear is that they're trying to move away from SOP, but we are hearing that they are facing some production issues in the transition. But this is definitely their goal, and also, obviously, the consumption of SOP should be going down for them.
Great, thanks. And then just on the Containerboard side, so Pulp & Paper, they cut the medium benchmark price $20 in January. Can you quantify the EBITDA impact of that on your business? And is that only open market sales that are affected or do you have some box contracts indexed to the medium benchmark?
So based on our calculation and the overall impact should be for the year of 2019 around CAD 9 million for our sector and to your question, this will have an impact over the course of the year. The direct sales to the outside will be moving faster than the impact on the contract that we have for converting product.
Your next question comes from the line of Sean Steuart.
A question on tissue to start. There are a lot of numbers thrown around referencing the quarter-over-quarter trends, if you isolate the nonrecurring issues you had this quarter across a number of operations, what was the impact of the non-recurring items that were out of your control with respect to EBITDA this quarter?
Well, I'd say about CAD 5 million.
CAD 5 million as you said were linked to the non-recurring items.
Yes, on non-recurring items, exactly. So the rest in the regular business, it's fiber, it's freight, it's subcontracting or contracting costs that are higher and again the inefficiency of our St. Helens plant, we had trouble there, that affected Scappoose and the [ reason now ] we have to buy paper externally. We have to move paper around. So that was a tough quarter for us on those aspects.
Okay. And when we're thinking about a broader plan to achieve your target margins at tissue and we appreciate you are going to be spending a lot on CapEx in that segment over the next two years to three years. Is that really a three-year turnaround, broadly speaking in terms of optimizing productivity and costs in that segment. Is that the right way to think about it in terms of timing?
I'd say it makes sense, because when you look at the time that right now we are more on the away from home side modifying asset, changing asset, removing old assets, so those lines will be installed basically this year until half of next year and then around, let's say, for a year before you optimize. We also have to do some investment in the retail market after that. So I'd say that your timeframe make sense, Sean.
And Sean, maybe I just can see that the [indiscernible] situation may help us in that regard. So accelerate maybe that the benefit that this segment of business needs. But our problem has not changed, it's three years are rebuilding and realigning our assets and also the St. Helens mill, so that's it.
Okay, last question for now. The Bear Island project, when do you anticipate taking that to the Board and if you can provide some context on some of the milestones that need to be reached before you're comfortable taking that project to the Board?
So our intent is to get the approval before the end of Q2 of 2019. And following that, there is normal lead times for equipment, but we're still at this point doing some free work and planning and all of this is being done during the preparation for the presentation for the board.
Your next question comes from the line of Zachary Evershed.
Good morning. Mentioned in your press release prior to the quarter that tissue was hit by the one-time events, you've quantified those as a CAD 5 million impact. And then you mentioned that the rest was freight fiber and the impact of the using Helens' inefficiency. In terms of the turnaround at St. Helens, the initiatives there, what kind of give back are we looking at and over what kind of timeline?
Well, it's a great question first, the timeline we are already working on that since November very heavily. We already see a good result now, but there's CapEx involved, so I'd say not before Q3 this year that we feel that we are going to be really at the level we need to be. We had damage there on big equipment that really hurt us on the fiber side. So it's not that easy fix but I can assure you that they have support from Cascades right now and the resources from my colleagues. So there is a big thing there of fixing the situation. But again, when there is CapEx involved, it takes more time. So I'd say during Q3, we should be in a very good position in St. Helens versus now. But we already see results in January and February.
And how do you feel about the supply and demand balance in Containerboard versus the capacity additions that have been announced by competitors and your own Bear Island addition?
Okay. So I'll start with the Bear Island, for us as we mentioned when we did the announcement for the acquisition, the Bear Island project for us is strategically to keep improving our asset base, well located for us when we look at our expansion. So when we look at the additional volume and we made the long-term decision to go with this project. In regards to the additional volume on the market, we made the same calculation as everybody else. And for us, we look at the growth of the box demand and the volume in North America and the ramp up of the new announcement for conversion and some of them are going to happen, some of them are probably not going to happen. And the other thing also that we don't make in the calculation is there's probably also going to the some of the older diesel equipment or machinery that's going to maybe close in time. So yes, there's going to be an impact, but we're still looking at the long-term impact at probably 2021, 2022 and there's a lot of things that can happen from now till then. So we're still optimistic about the North American market in our sector.
Last one from me, given your CapEx budget for 2019, do you still see a CAD 100 million debt repayment over the course of the year?
Yes, this is our objective.
[Operator Instructions] Your next question comes from line of Keith Howlett.
I had some questions on the Tissue business. Firstly on the CAD 75 million non-cash write down, what assets does that relate to?
Well, we don't disclose the detail of this but we can see that the majority of it is on the St. Helens mill.
Sorry, on the which mill?
On the St. Helens.
Oh, St. Helens mill. I see. And in terms of the plant closures in the Toronto area, it looks like they had 54,000 of capacity, so was the problem that they didn't have demand or they are not efficient plants or…
Well, for both it's a different answer, but I can tell you that what you said apply to each of the -- one machine each, so there is a brown machine in Whitby that has not enough demand and the White one in Scarborough has enough demand. But the profitability was simply not there and the size of the machine was simply not there to justify to continue to operate that
And just in terms of location of mills, is it quite different whether it's a recycled mill or I would presume it is or a virgin mill and how does your current plant capacity deal with mill capacity, deal with that on the freight side, that's what I'm thinking about.
Not sure, I understand right the question, Keith.
Sorry, I was basically thinking that if you're using recycled material at a plant in Toronto, where there is a lot of recycled material would be a good place to have a plant. But if when it's also producing virgin products, that isn't where you'd want the mill. So I was just trying to figure out how as you adjust the in-product mix between recycled and virgin product how that affects where your mills are located?
Yeah, sure. You want to have a recycled mill closer to a big city, but our Scarborough plant the one producing white grade was producing virgin paper for our U.S. division. So that was not an advantage for [indiscernible] and the other one on Whitby it was producing brown paper only, so recycled on this was an advantage, but there was not enough market for this plant. So we're not beneficiating of being close of a big city and we have no converting plant in tissue in Ontario, as well. So we're shipping product far away on top of it.
And then just can you speak to how the retail products are doing in the tissue business?
Volume is very good on the retail side. Canada, we cannot complain about Canada retail or away from home, it's really the U.S. profitability that is tougher because of the supply there, but as you heard earlier with Soundview situation, it would help that environment for sure. But U.S., it's where it's tough right now.
Your next question comes from the line of Paul Quinn.
I guess maybe to start with Containerboard, just we've seen some weakness in MEDIUM, how much more weakness you expect there [indiscernible].
I'm not going to comment on the prices because you saw the announcement in the publication. There is on the market the seasonality of the Q4 and the Q1. So we saw that on the market, on the MEDIUM. There is also a few new players on that, but we expect that Q4 -- sorry the Q2 to be better, and already in the month of March we're seeing the seasonal pickup. So at this point, we don't see any additional pressure on our side. The thing also is we have integration, we have some long-term contract also with long-term customers. So at this point, we're not seeing any anything further than what was announced on the market.
Okay, so then I guess your near-term factors slide, that's Slide 32 where you've got selling prices coming down quarter-over-quarter, is that more of a muted coming down and you don't expect a significant price ramp.
Yeah, exactly. We were trying to and as you say the arrow is it's just a bit lower to reflect first of all the mix of product that we do in the Q1 also, with us showing to you on our product and also some impact of the $20. So when we did our -- placed our little [ arrows ] we put it a bit lower but nothing drastic.
Okay and then what are you seeing in terms of your order file in European Boxboard?
We see the slowdown at the end of '18 and beginning of '19 , they are still healthy but I can see that we've come down probably in the three-months period about five days to seven days while we still have probably within 13 days to 15 days of backlog, which is fairly good.
Okay and then just maybe you could describe some of the operational challenges you've had at St. Helens?
Sure, we had problems with the clarifier with [indiscernible] with the new equipment that we installed last year as well in terms of the communication between the IT system and a new FIS system we've put in place. So we had a lot of operational problems around that. We have to sub-machine work extremely hard on quality. We had way too much [ boo ] on a machine at one point. So it's like everywhere else there is a lot of people turnover in the U.S. right now. And we had bad behavior, I'll put it this way from some of the operator that's created problems as well and this has affected quality of the two other plants. So we saw what we call the overall efficiency of our two converting plants using paper going down in an important manner, which forced us to do more logistics to send more product to the West Coast again to support them. So that's part of what we had to go through in December, we had to change management over there. So it was quite of a turnaround for us and management change to do in the last quarter.
Sounds like a lot of work. Thanks for the additional color and best of luck.
Your next question comes from the line of Sean Steuart.
One quick follow-up for Allan. The depreciation of the Containerboard segment, the spike this quarter and I assume that was some accelerated depreciation item. Can you give us some context there and should we expect that to normalize back to previous levels going forward?
You mean in the Containerboard sector?
Correct.
Yes, while the impact this year was at the Piscataway plant that came on board. And then quite, I think there was maybe a bit of accelerated depreciation by the end of the year. When we know that we're going to replace some equipment in the future by a new CapEx, we start to depreciate more. But yes, I would say that unless there is a bigger CapEx coming in, it should be more stable in the future.
So maybe not all the way back to, I think it would have been CAD 20 million, CAD 21 million quarterly before it ends, maybe not all the way back there with Piscataway included, but most of the way back is that the way I should think about it?
I would be surprised that it would come down to the prior year levels due to recent CapEx of the recent year.
Your next question comes from the line of Keith Howlett.
Yes, in 2018 you have the sale of land, the plant here in New York City. Do you have any asset sales this year that will be a set off against the capital budget of CAD 330 million to CAD 400 million?
We might have some, Keith, but nothing significant as the New York ones.
And then just in terms of the CAD 330 million to CAD 400 million, can you sort of directionally give us how that will be spent?
You have a slide in the deck. Slide 22, which I believe you have the breakdown and we have highlighted that it will be a portion in tissue, a portion in Bear Island depending on the approval of the project. And we have put on that slide that, this year we have some warehouses and some rolling equipment replacement mainly in the recovery business that we need to do. So that's what we have highlighted so far in terms of the major categories of projects.
And just in terms of that tissue converting assets, are they mostly in existing facilities or…
Yes.
Thank you. There are no further questions at this time. Mr. Plourde, please continue.
Thank you very much, operator. Thank you, everyone, for being on the call today and we're looking forward to have you on our next call. Thank you, and have a great weekend.
Thank you, ladies and gentlemen, this concludes today's conference call. You may now disconnect.