Cascades Inc
TSX:CAS
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Cascades Inc
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[Foreign Language] Good morning. My name is Simon, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cascades Fourth Quarter 2020 Financial Results Conference Call. [Operator Instructions] 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 2020 conference call. We will begin with an overview of our operational and financial results, followed by some concluding remarks, after which we will begin the question period. The speakers on today's call will be Mario Plourde, President and CEO; and Allan Hogg, CFO. Also joining us on the call are the Presidents of Cascades business segments, namely: Charles Malo, President and COO of the Containerboard Packaging Group; Luc Langevin, President and COO of the Specialty Products Group; and Jean-David Tardif, President and COO of the Tissue Papers Group. They will all be available for the question-and-answer period at the end of the call. Before I turn the call over to my colleagues, I would like to highlight that Reno de Medici's interim report released on February 16 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, the investor presentation and the press release also include data that are not measures of performance under IFRS. Please refer to our Q4 2020 investor presentation for details. This presentation, along with our fourth quarter press release, can be found in the Investors section of our website. If you have any questions, please feel free to call me after the session. I will now turn the call over to our CEO. Mario?
Thank you, Jennifer, and good morning, everyone. I would like to begin our call this morning by acknowledging our appreciation for the dedication and resilience of our employees throughout the past year; by thanking our customers, suppliers and communities in which we operate for their continued strong partnership; and by thanking our shareholders for their ongoing trusts. We are very pleased with our strong fourth quarter consolidated performance. It exceeded expectations for the period, given our cautious outlook due to the ongoing COVID-19 pandemic. Our operation delivered solid results in the last 3 months of the year and drove our third consecutive year of record annual adjusted EBITDA level in 2020. Broadly speaking, these results demonstrate good execution at our facility and benefit from our margin improvement initiatives begun in the first quarter of the year. Annually, this program generated approximately $75 million of adjusted EBITDA improvement in 2020. Allan will give you more details in a few minutes. Subsequently, fourth quarter results were driven by Containerboard, which benefited from strong demand in both the manufacturing and the converting side. The Tissue segment also generated strong quarter-over-quarter results, providing an improvement in adjusted EBITDA margin of 10.5%, within the context of continued away-from-home product demand pressure due to the pandemic. Adjusted EBITDA of $166 million was 2% above Q3 and 9% above the same period last year. On a consolidated basis, our adjusted EBITDA margin was 12.9% in Q4. Slide 4 and 5 provide details for each of our business segments. On the raw material side, highlighted on Slide 6, the Q4 average index price for OCC more than doubled year-over-year, an increase at 12% compared to Q3. This is largely a reflection of higher domestic demand levels for this fiber as containerboard production levels have responded to pandemic buying pattern, combined with strong export activity to South Asian country. Average prices for white recycled paper grades decreased 15% year-over-year in Q4 and were down 26% from Q3 levels. On the virgin pulp side, hardwood and softwood pulp prices were essentially stable both year-over-year and sequentially in Q4. Moving now to some brief comments on the performance of each of our business segments, highlighted on Page 8 through 11 of the presentation. The Containerboard segment generated a slight 1% decrease in sales sequentially. Shipment decreased 3% from Q3, reflecting usual seasonality of sales mix. The jumbo roll shipment decreased 6%, reflecting a 1% decrease in capacity utilization rate and a 2% increase in integration rate. On the converting side, shipment increased by 1% sequentially in millions of square feet, in line with the Canadian market but below the 4% increase registered in the U.S. market for the period. These were offset by a 2% increase in the average selling price. Q4 adjusted EBITDA of $110 million, or 22% on a margin basis, increased 10% from Q3 levels. This was driven by lower raw material and operational costs and a more favorable sales mix and early benefit from the November 1 price increase. These were partially offset by lower volume and higher labor and freight costs. As a reminder, Q3 result also included an approximate $3 million impact related to a operational stop at our Niagara Falls complex due to maintenance and a disruption from the mill's off-site steam supplier. Manufacturing downtime related to planned maintenance and capital investment of 9,200 short ton were taken in Q4, below the 11,400 short ton taken in the third quarter. Our Tissue business fourth quarter sales decreased 5% sequentially. This was largely driven by higher volume linked to year-end fulfillment of contractual annual volume with shipment level up 5% from Q3. A higher average selling price and a more favorable mix of products sold were also a positive contributor while the 2% appreciation of the Canadian dollar was a net negative to sales levels. Adjusted Q4 EBITDA increased $4 million sequentially, reflecting lower raw material costs and higher average selling price and volume. These were partially offset by a more elevated production costs and transportation and energy costs. We are pleased with the improvement in Tissue, which despite continued demand impact related to COVID-19 generated an impressive 510 basis point margin improvement this year when compared to 2019. European Boxboard operation had a good quarter. Q4 sales decreased 3% sequentially, reflecting the usual holiday season in the shipments. Adjusted EBITDA decreased $2 million from Q3 levels, reflecting a lower average selling price and volume, the effect of which was partially offset by lower production costs. Specialty Products segment generated solid Q4 results sequentially and year-over-year. When compared to the prior quarter, Q4 sales increased by $6 million, driven by stronger volume in molded pulp fiber-based packaging and more favorable pricing and sales mix. These were partially offset by lower sales in the plastic packaging and less favorable exchange rate. Adjusted EBITDA levels decreased by $1 million sequentially. I will now pass the call to Allan, who will discuss the main highlights of our financial performance. Allan?
Thank you, Mario, and good morning. So I will begin with an overview of our KPIs on Slide 13. So our fourth quarter shipments decreased by 9,000 short tons or 1% from Q3, driven by a decrease of 3% in Containerboard and a slight 1% decrease in Europe. These were partially offset by a 5% increase in Tissue shipments in the prior year. The third quarter capacity utilization rate of 92% increased 2% compared to the prior year and 1% from the third quarter levels. Average working capital came in at 9.6% of sales, down from 9.8% in Q3 while consolidated return on assets stood at 13.1%, up from 12.8% in Q3. Moving now to sales as detailed on Slides 14 and 15. Year-over-year, Q4 sales increased by $57 million or 5%, driven largely by volume increases in Containerboard and Specialty Products segments, favorable pricing and mix in Tissue and a beneficial foreign exchange rate for the European Boxboard segment. These were offset by lower volumes in Tissue, less favorable pricing and sales mix in Boxboard Europe and negative foreign exchange rates for both Containerboard and Tissue. On a sequential basis, fourth quarter sales increased by $9 million or 1%, largely reflecting better pricing and sales mix in all North American operations and higher volumes in Tissue and Specialty Products, partially offset by less favorable foreign exchange for all North American segments. Moving now to operating income and adjusted EBITDA, as highlighted on Slide 16. Q4 adjusted EBITDA of $166 million increased $14 million from the prior year level. All business segments generated stronger year-over-year results with the exception of corporate activities. Sequentially, Q4 adjusted EBITDA increased by $4 million or 2% as shown on Slide 17. This was driven by stronger performances in Containerboard and Tissue, partially offset by a slightly weaker contribution from corporate activities. Adjusted EBITDA for the year reached $675 million, an increase of $71 million or 12% from 2019 levels. This improvement reflects the good performance of European Boxboard, Specialty Products and in particular, our Tissue segment, the combination of which offset the decline in Containerboard. Our adjusted EBITDA margin came in at 13.1% in 2020 compared to 12.1% in 2019. Moving now to Slide 19 of the presentation. In the first quarter of 2020, we initiated an important profit margin improvement program for our North American operations, focused on improving competitiveness, efficiency and productivity, thereby limiting the potential negative effects related to economic downturns or adverse market conditions. A similar program was already underway in the European operations. The program is built on 5 strategic pillars: net revenue management, production efficiency, optimization of sales and operations planning, supply chain efficiency and organizational effectiveness. The objective of this program is to improve our adjusted EBITDA margin by 1% annually in 2020, 2021 and 2022 with these improvements calculated from the levels of 2019, our baseline year. Although the pandemic delayed the implementation of some initiatives, we were able to exceed our target for 2020 by achieving approximately $75 million of adjusted EBITDA net of related costs to implement these initiatives. These benefits offset some negative impacts related to COVID-19, increased raw material costs and reduced selling prices for certain products. Slides 20 and 21 illustrate the specific items recorded during the quarter. The main items worth mentioning are: a $40 million gain from the sale of a building and land of a closed Containerboard facility in Ontario; $13 million of impairment charges following the revaluation of certain assets in Tissue and Boxboard Europe in light of current market conditions; and an $8 million of restructuring charges associated with profitability and restructuring initiatives. Slides 22 and 23 illustrate the year-over-year and sequential variance of our Q4 adjusted earnings per share and a reconciliation with the specific items that affected our quarterly results. As reported, earnings per share were $0.72 in the fourth quarter. This compared to a net loss per share of $0.27 last year. Both periods included specific items. On an adjusted basis, EPS increased by $0.12 compared to last year results. Higher operating results and lower depreciation expense were offset by higher financing expenses. On an adjusted basis, sequential fourth quarter earnings per share decreased by $0.08 per share from Q3 levels due to a positive impact of tax asset reassessment of prior year's losses recorded in Q3. As highlighted on Slide 24, fourth quarter adjusted cash flow from operations increased $45 million year-over-year to $152 million. This reflected higher operating results, lower income tax and net financing expenses paid. Adjusted free cash flow levels increased by a strong $69 million year-over-year. Moving now to our net debt reconciliation as detailed on Slides 25 and 26. Our net debt decreased by $303 million in the quarter. This reflects strong cash flow from operations; $120 million of net proceeds from the equity offering concluded on October 22; a positive foreign exchange impact of $71 million; and a favorable $60 million positive variance in working capital, partially offset by dividends and CapEx payments. For the full year, net debt went down by $284 million or 14%. Capital investments, the purchase of the CDPQ's equity in Greenpac and our dividend payments were more than offset by strong cash flows from operations and the issuance of common shares. We reached our stated leverage ratio target, which stood at 2.5x at the end of 2020, down from 3x at the end of Q3 and 3.25x at the end of last year. This, along with other financial ratios and information about maturities, are detailed on Slide 27. On Slide 28, we provide details about our capital investment plans for the full year. We expect to invest approximately between $450 million to $475 million in 2021, which includes $250 million of investments associated with our Bear Island conversion project. We will continue to prudently manage our cash flow and our debt profile with the objective of keeping our leverage ratio within a range of 2.5 to 3.0x while we execute our Bear Island project. At year-end 2020, we had cash and revolver ability of approximately $1 billion. Mario will wrap up the call with a brief conclusion before we begin the question period. Mario?
Thank you, Allan. We provide details regarding our near-term outlook on Slide 30 of the presentation. As a reminder, this outlook is based on what we are seeing today and may change in the coming months, given the dynamic nature and the ongoing unusual circumstances. Difficult weather condition in the U.S. may also impact the supply chain efficiency in some of our U.S. plants. Our near-term outlook for Containerboard segment is positive. This is based on a very strong continued demand in both the manufacturing and converting side and rollout of the announced price increases. The first price increase is expected to be fully implemented in the second quarter of 2021 and the second price increase will start to be implemented in Q2 and is expected to be fully in place by the end of the fourth quarter. These factors are expected to offset the impact of OCC price increase since the third quarter of 2020. We are expecting steady sequential results from Specialty Products segment. This reflects stable volume and a higher average selling price in molded pulp and fiber-based packaging. Near-term performance in European Boxboard is also expected to be stable sequentially with stronger volume and stable pricing offsetting higher raw material costs. Our mid-term outlook for the Tissue segment is less favorable on a sequential basis. This is largely a function of seasonality, sequentially a comparison of a solid finish to 2020 as customers fill contracted annual order level and expected cost creep in raw material. We foresee demand for away-from-home product remaining under pressure, given continued business shutdown in North America, while demand for the retail tissue product is expected to remain stable. Pricing improvement will support results going forward as will benefit being realized from the ongoing restructuring and modernization investment. Added to this, we remain focused on optimizing the production and cost structure of this business platform, the benefit of which we are beginning to see flow through results. To this end, we closed our 2 paper machines totaling 55,000 tons of capacity in Pennsylvania in early December. The converting plant was subsequently closed at the end of January 2021. We also announced the closure of our Laval converting plant scheduled for the end of June 2021. These closures are part of our network optimization plan and the volume is being transferred to other facilities. Moving now to raw materials. The recovered paper market saw increased activity in the fourth quarter. OCC generation was robust as was demand for the fiber with solid domestic demand levels and strong export activity to South Asian countries. We finished the year 2020 with good inventory levels. And we have not had difficulty securing needed fiber. We expect similar OCC dynamic to persist for the coming months with domestic demand remaining robust, slightly lower seasonal generation and persistent export activity and lower shipping container availability resulting in a tighter market. Conditions for the white grades were stable, helped by lower demand than the away-from-home tissue product. Material has remained readily available, and we have continued to maintain good inventory level. Looking ahead, the recent uptick in virgin pulp price will likely put an indirect upward pressure on costs. The virgin pulp market saw an unexpected and rapid surge in pricing at year-end. This was driven by strong and likely underestimated domestic demand, extended planned and unplanned downtime at pulp mills and rapidly growing Chinese demand. The coming months will provide greater clarity as to how much of these market dynamics are being driven by fundamental versus short-term condition and speculation. Currently, our mills are supplied and will continue to be supported by our long-term supplier relationship and good inventory management. Let me conclude by saying that we are pleased with our performance in Q4 and very proud to have achieved a record annual EBITDA level for the third year in a row. In addition, we reduced our leverage ratio within an unpredictable and challenging business environment. We are also very proud to have been rated 17th in the top 100 most sustainable companies in the world, placing first in our sector in the Corporate Knights 2020 annual survey of more than 8,000 companies worldwide. This highlighted our commitment to sustainability and our belief that it will create long-term value for Cascades and our stakeholders. These results highlighted the importance of growing operational and financial traction being generated by our modernization and margin improvement initiatives and strategic investments over the recent year. None of this would have been possible without our employees. Their commitment to these initiatives and their dedication and resilience during these challenging times is truly inspiring. As always, their health and safety remain our top priority. And we applaud their diligence to the safety measures in place in all our facilities. With that, we will now be happy to answer your questions. Operator?
[Foreign Language] [Operator Instructions] Your first question comes from the line of Hamir Patel.
Mario, we've seen a fair bit of M&A in the European Boxboard market in recent months at multiples a fair bit higher than where Reno trades. Has that changed how you think about potentially monetizing that business?
Actually, not really. We maintain the same approach with Europe. You probably are aware that we are participating in the M&A game in Europe as well. We just announced the acquisition of Paprinsa. And we think this will generate good synergies and value for the group. So no, we have not changed our position.
Okay. Fair enough. Then just turning to that Containerboard side, and I'm not sure if we have Charles on the line, but how much of the $60 per ton hike, assuming it's fully reflected in the trade publication, how much of that is going to be offset by some of the higher freight costs and commodity inflation that you've been seeing?
So yes, Hamir, this is Charles. Just maybe one point to mention, we have announced at Cascades $60 on the liner. But we are pushing a price increase further on the medium. So we are going to implement a $70 on the medium. As you know, medium is important in our portfolio. And the increased cost and the margin that we're generating with the medium and the demand, so we are working on implementing $70. So I just wanted to mention that part. On the cost of the impact of the OCC and the other costs, it's -- as Mario mentioned, it's too early to say about the full impact on the course of the year. So right now, there's probably about $30 negative impact. But the next few months will tell us if this is going to be for the rest of the year or just in Q1.
Great. That's helpful. And could you give us an update on the offtake status at Bear Island? Have you signed any new long-term agreements there yet?
At this point, we don't have any firm offtake. As we mentioned, there's a few initiatives that we are working on to secure or build up the volume. First of all, our converting operation are continuing to generate good growth, which is a part of the volume that we will need when we start the new paper mill. We're also continuing to negotiate with some of our current customers. So we're in discussion with them, so -- but nothing has been signed as we speak. Our starting date is December -- the Q4 2022. So we are working diligently on securing some more volume for the startup, and we'll keep you informed on that.
Your next question comes from the line of Sean Steuart.
A couple of questions. First, on Tissue, it looks like the mix this quarter was a larger support to overall results than we expected would be the case. Can you comment to the extent that the favorable mix trends you saw in Q4 are continuing into early 2021?
Jean-David. Yes, we saw better sales on the retail side, for sure, at the end of the year. So that helped a lot. But we also have to mention, like Allan said, we've put a lot of emphasis on the net revenue management exercise from the margin improvement program that we have. So we've worked a lot to get the right customer mix and the right portfolio with our customers. So that was mainly the factor explaining Q4 results. But we also said that December was stronger than expected, which is having a negative impact on January. So we don't see a favorable trend on that side for Q1. It's going to be pretty much stable, as Mario also said, in terms of sales. On the away-from-home side, we saw a slight difference from month-to-month. Again, December was stronger. But January and February are in line with the last few months, I would say. So it's too early to see a pickup on the away-from-home side, I mean. So it should be pretty much stable.
Allan, the corporate costs climbed in the fourth quarter. And there was a reference to, I guess, a nonrecurring incident charge. How should we expect that to trend? Is it fair to forecast that falling back towards more standard quarterly levels into the early part of this year?
Yes, sure. When there's an incident and it's below our -- the amount we can claim, it's always recorded in corporate. And also there were more employees' insurance claim than, let's say, in the last few months of the year compared to the previous months, so -- but overall, yes, it should revert back to normalize, yes.
Okay. And one last one for me, Allan. Can you go through the company's NOL position in Canada and the U.S.? I'm just trying to get a sense of your ability to shield cash taxes going forward.
Yes, exactly. No, with the stronger performance over the last few years, certainly that we've utilized some of these NOLs. At current level, we expect to be good for the next 2, 3 years. But certainly, that if we continue to improve, it will offset more rapidly these NOLs. But we still have a few years in front of us.
Your next question comes from the line of Mark Wilde.
And congratulations on both a good quarter and doing what you said you'd do on the balance sheet. A couple of questions from me. First of all, any initial read on the impact of these storms and power issues in the Southern U.S. kind of across your portfolio?
Not so far. Charles, you're probably the one or Jean-David. I think you're probably the one that have been the most affected. But at high level right now, I would say no impact right now. But Charles, maybe you want to add something or, Jean-David, because at my level, I haven't seen any huge impact.
Well, maybe just I can start, Jean-David, I'll let you speak after. For us, the most -- we don't have operation on the Containerboard on that side. On the supply, it's so tight right now that our customers continue request to [ refeed ] material. So there were some delays but no major impact. Where we were a bit more concerned at one point was because we make some trades on the kraft linerboard side. And as we speak, the impact would be minimal. So we don't see any major impact as we speak, Mark.
Okay. And anything on Tissue?
Yes. On our side, it's the Oklahoma site that was affected. So machines are still down. So we lost probably 2,000 tons, I will say about 10 days of production. And the converting site because of employees not being able to travel, et cetera, so it's probably 400,000 cases that we're going to lose. But overall, it's not net loss because we're moving product around. So we're bringing jumbo rolls from other sites or we're moving cases from other sites. So it's not huge, but -- it's not material, I would say, but it's still an impact on freight costs and other costs.
Okay. And Mario, kind of looking through kind of '21 and maybe even into '22, any thoughts on just sort of further portfolio moves?
Well, right now, we're really focused on finalizing what we have started. As you know, we've launched the Bear Island project, which is a substantial project for us, and it has started now. We have all the approval, commitment. We're negotiating with different suppliers and contractors. So a lot of our focus will be dedicated to that. At the same time, as you noticed, we've made many changes in restructuring Tissue and investing in many different plans moving tons around. Now we need to ramp up these and capture the synergy and the benefit of those investments. So this year, most of our focus will be to finalize this investment in Tissue and ramping up and focusing on Bear Island.
Okay. And then just broadly kind of also looking ahead a little bit, I'm just curious, historically, you've been very focused on the use of recycled fibers, and particularly in Tissue but maybe in Containerboard as well. Any thoughts, just given what's going on in the market, about perhaps toggling over to virgin fiber in either of those businesses?
We are more focused doing so in our Tissue segment because the portfolio of product we have in Tissue allows us to use more virgin fiber. As for Containerboard, we still remain really focused being on recycled grades. It's our forte and this is our focus. So right now, no, we're not looking at any virgin move on the Containerboard side. But market is moving in terms of tissue quality demand. And so we are using more virgin fiber tissue as we speak.
Okay. And I guess the last one, we've had in the last several weeks companies in this sector hit by cyber attacks on both sides of the border. And I wonder perhaps, Allan, can you just talk about the things that you've done at Cascades to defend yourselves from these type of attacks?
Yes. Well, we've been at it for a few years now. We have a dedicated team that is in charge of monitoring this. Obviously, that the recent events had us maybe accelerate or maybe push on new things to do or to be more rigorous and so on. But I think we're pretty well served, organized. We can obviously continue to improve to reduce the risk. But we have -- we're -- the key is to -- if it ever happens, is that we can run our operation on a manual mode. And this is maybe something that we must be really ready if it happens. So that's the key for us that we see right now within the group, so yes.
Your next question comes from the line of Zachary Evershed.
Congrats on a great quarter. I was hoping you could give us some more color on the continued margin improvement initiatives and what represents the biggest opportunity in 2021.
Well, you saw the 5 pillars. It's -- you must understand that after all these years of implementing a CP and redesigning our business processes, it was time now to really get the most of all of these new platforms. So I would say that for the first tier of the program, net revenue management was something that was really a strong contributor to this exercise. But all of these, the 5 pillars, have different objective or things that we're looking at, so -- but to answer your question more precisely, first, it was net revenue management.
That's helpful. And in terms of the away-from-home trends that you're seeing in Tissue, you mentioned quality improvements across the market demand. What are you hearing from customers as they look to maybe restock at the restaurant hotel level?
Right now, I think it's still too early. Their inventory is on the high side from our perspective. And their focus is much more on other products than on paper. So we haven't seen much of an increase or a pickup at this moment. The e-commerce is doing really good. So more and more, we're partnering with distributors on that channel. So I think this is something we underestimate over the last few years. But this is definitely growing on that side of the market, but sorry, no -- too early to say.
Got you. Last one for me, a little bit more far-reaching and speculative, but with the shakeup in supply and demand that we saw due to COVID-19 and China's import ban, where do you foresee recycled fiber prices stabilizing over the medium term?
This is -- Zachary, this is Luc Langevin. I will answer your question. For the moment, we are a typical low-generation season. On top of that, in Canada, recently, there has been confinement in both Québec and Ontario, which are important locations for us for fiber generation. And despite these conditions, I mean, we have a regular supply at this moment. We observed, as the rest of the market, some stronger pricing from export. But besides the stronger pricing, there's limited volume, considering the difficulty of bookings of containers. So it has not such a huge impact on the domestic market. In the future months, we're going to get back to higher generations. And I would say now, the market is still tight at this period of the year, like it is normally in February. And we expect that situation is going to become a little bit more favorable for buyers likely in April, May like it normally do. But our inventories are good and we have regular supply at this moment.
[Operator Instructions] Your next question comes from the line of Paul Quinn.
Solid Q4 results. I guess we'll start on Containerboard. Just to try to understand what you've announced in terms of the price hike, I think, for November as well as for March.
Paul, this is Charles. So what we have announced in November, which we said will be implemented, fully implemented by Q2. So we did announce a $50 price increase on the containerboard. And for the second price increase, which is effective March 1, we have announced a $60 on the linerboard and $70 on the medium. And this -- the full impact, we can consider that it's going to be implemented by Q4.
Okay. That's great to clarify it. And then just maybe just trying to understand the margin improvement of the baseline for 2019, that's supposed to be a 1% improvement. Basically, you got that percent. Is it off your EBITDA in 2019 as a base?
Well, the program, every metric that we have in the program is based on cost or KPIs based on 2019. So when we'll continue this year and next year, we will always measure this compared to our 2019 basis to make sure that we capture the objectives that were set at the beginning. So it will flow through results, net of related -- recurring costs that we will incur, it will be netted against that. So the objective, yes, it remains to approximately 1% per year. That's how we set the objective at the beginning.
Okay. So maybe I worded that poorly. But that $75 million that you achieved, did that get to 1% off the baseline?
Yes, and more. So it's part of the $71 million dollar improvement in EBITDA. But in the pillars, there are some that are going through costs and some are going to the top line. So it's all through the P&L. But at the end of the day, yes, it's contributing to EBITDA and helping us to face headwinds that we have from market conditions.
Okay. And then just on the CapEx spend, the net $200 million to $225 million that you're going to spend outside of Bear Island, what portion of that is maintenance? What portion is strategic? And any important strategic programs in there?
The maintenance is still around $75 million per year on all the other assets. And the rest of the envelope is split quite equally between the 3 groups, except the Bear Island project, which has bigger envelope.
Your next question comes from the line of Mark Wilde.
I wondered, Charles, since we're kind of flying blind here with this change in FBA reporting, can you give us some sense of what you're seeing in box volumes through the end of February? There have been some talk in the trade press about maybe volume being a little slower growth. And I just wondered what you're seeing in the market through the first 2 months of the year.
Yes. You're -- the comments right now, what we're seeing -- I'm going to speak for Cascades because...
Yes, yes, yes.
Yes. So it's -- and as you know, we're very present in Canada but also in the Northeast, Mid and Southeast of United States. So mainly, my comments are going to be more related to that. So we're seeing that the beginning of the year, Q1 was still very strong. The February or mid-month, as you know, is a smaller or shorter month. But still, the per day, when we look at our demand and our output, we consider it's very strong. I think we have to be careful also of the Q4 -- the Q3, Q4 was so strong that just a bit lower demand for a few weeks and people are starting to say that it may be a slowdown. We don't see this at all. So we consider that we are going to see a very strong Q1 in the markets where we are still. And that's what we see at this point.
Okay. All right. That's helpful. And is it also possible, over on the Tissue side, could you just recap for us what kind of price moves might be out in the market right now?
Again, I think it's early to say. For sure, we're seeing major hike on the virgin pulp price this week and so the forecast are for higher pricing short term. So we'll see how the market evolves. Right now, there is nothing announced officially. But as I said earlier, we're working hard on the portfolio and the customer mix to get our -- get advantage of it. But no, we haven't heard anything or we haven't seen anything on sheet count adjustment or pricing announcement.
And given the fact that most of the big players on the consumer side are nonintegrated, how long would you typically expect they can afford to wait before they try to pass on these higher costs? Do you have any sense of that? I mean, do they have kind of 3-month, 6-month protection on their fiber cost such that they can wait a little while and see if this thing is sustained? Or do they need to move fairly quickly in order to protect their margins?
That's a good question. It's usually too long. But we haven't seen any price increase in retail U.S. for quite some time. So we've got one, 2 years ago, maybe a little bit more and we have been many, many years before that. So I think we're going to -- we may see sheet count adjustment on the product to compensate.
Mark, if I may add, Mark, it's Mario speaking. It really depends on the speed of the increase in pulp. Right now, what we see is a rapid increase. It's tough to tolerate such increasing costs in our business. So if it keeps ongoing at that speed, obviously, I think people might react. That's no doubt.
It would seem like it, Mario. I mean I think we've all been kind of caught off-guard by the kind of the speed of this tightening and then the fact that it seems to be kind of continuing late in the first quarter here.
That's right.
There are no further questions at this time. Mr. Plourde, please continue.
Thank you, everyone, for being on the call this morning, and we're looking forward to talk to you for our Q1 results. Have a good day. Everyone, be safe.
Thank you.
Thank you.
[Foreign Language] Thank you. Ladies and gentlemen, this concludes today's conference call. You may now disconnect.