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Norbord Inc (NYSE:OSB)
Q1 2020 Earnings Call
May 6, 2020, 6:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to Norbord Inc.'s First Quarter 2020 Conference Call. [Operator Instructions] Webcast on Norbord's website at www.norbord.com.

Norbord's discussion today may include certain projections and forward-looking statements regarding Norbord's businesses, future actions and expected results. These statements are subject to known and unknown risks, and future results may differ materially. For further information on known risks, please see the caution regarding forward-looking information statement in Norbord's February 4, 2020, annual information form and the cautionary statement contained in the forward-looking statements section of Norbord's management's discussion and analysis dated February 4, 2020.

And now I'll turn the call over to Mr. Peter Wijnbergen, President and Chief Executive Officer. Please go ahead.

Peter C. Wijnbergen -- President And Chief Executive Officer

Thank you, Kevin, and good afternoon, everyone. Welcome to our Q1 2020 conference call. I'm joined today by Robin Lampard, our CFO; Heather Colpitts, our Director of Corporate Affairs; and Robert Winslow, our Vice President of Investor Relations and Corporate Development. We held our AGM this morning, so we'll keep our prepared remarks brief this quarter. I hope you had a chance to listen to my AGM comments, but if not, a replay and transcript will be available on our website. This afternoon, I want to take a moment to highlight a few key points about our Q1 results as well as how the COVID-19 pandemic has impacted our key markets and the corresponding actions we're taking. Then I'll ask Robin to make a few comments about our balance sheet and capital allocation before we take your questions. Our first quarter result was strong as we generated $75 million of adjusted EBITDA, our best result in six quarters and nearly double the year-ago level.

In North America, the improvement in U.S. housing activity that began in late 2019 carried into the first quarter of 2020, spurring increased OSB demand and higher benchmark prices. We produced 79% of available it's 75% to 79% of available capacity but excluding indefinitely curtailed 100 Mile House and Cordele Line one, we took 35 mill days of downtime in the quarter. I'm especially pleased that we were able to reduce our per unit manufacturing cost versus both comparative quarters. In Europe, panel demand improved significantly through most of the first quarter. And though panel prices continue to decline, the decline that started in Q3 last year, our adjusted EBITDA was only $1 million lower sequentially. Our Inverness mill is ramping up well, which supported the 26% sequential increase in our European shipment volumes. While the construction activity on the second phase of investment in Inverness has recently been slowed due to COVID-19, the mechanical insulation is largely complete and we still expect to complete this project before the end of the year. This will help us continue to serve substitution-driven OSB growth for the years to come.

Turning to the impact of COVID-19 on our key markets, the end use where we saw the most immediate impact for us in North American industrial where our customers that manufacture products like upholstered furniture were deemed to be nonessential and had to suspend operations in March. We also saw the U.K. government-imposed strict lockdown orders on manufacturing and retail, which forced many of our key customers in our largest European market to close operations. However, in both cases, businesses have started to reopen in the past three weeks, and orders are starting to come back. Home builders in North America are indicating that their business has improved consistently in the past three to four weeks after significant declines experienced in March. I'll note that we have seen particular resilience in demand from Germany and the Benelux, our second-largest European market as well as North American repair and remodeling, which represents about one-four of our North American demand.

While this is encouraging in the short term, there remains considerable uncertainty around the depth and the duration of the economic impact of COVID-19. In April, we reduced operating capacity by 35% in both North America and Europe by adjusting operating schedules. Our current flexible operating configuration allows us to keep most of our people employed and be agile in scaling up and down as needed to match production with demand during this period of uncertainty. While these are difficult times and the world will need to adapt to a post-COVID reality, we have not lost confidence in the future of OSB or our company. We're closely monitoring the effect of the pandemic and have confidence that OSB will be a leading part of the economic recovery when that time comes.

And with that, I'll pass the call over to Robin.

Robin E. Lampard -- Senior Vice President And Chief Financial Officer

Thanks, Peter, and good afternoon, everyone. At Norbord, we've always taken a balanced approach to capital allocation. And right now, our priority is cash conservation. We're taking a number of steps to do that. As previously announced, we are deferring noncritical capital projects and have further reduced our 2020 capex budget by an additional 25% from $100 million to $75 million. We have virtually no capital projects committed for next year and could, if economic conditions still warranted, pull back capex to a minimum sustaining level of $35 million in 2021. We see great value in our stock with shares trading at a steep discount to our view of intrinsic value. But while we were actively repurchasing our shares in January and February, we suspended buybacks in March for the time being. Finally, as you have seen, our Board reduced the dividend to CAD0.05 per share this quarter, which will save us $34 million annualized versus the prior quarter's level.

This is entirely consistent with our variable dividend policy that gives us the flexibility to adjust the payout level up and down as our operating results, outlook and balance sheet allow. So turning to our balance sheet. Norbord has no bond debt maturities until 2023, and our liquidity remains strong with $247 million available at the end of Q1 even after we invested nearly $70 million in our usual seasonal working capital increase. This seasonal build typically reverses over the remaining three quarters and will release cash flow as it unwinds. We have significant headroom versus the two financial covenants governing access to our revolving bank lines, neither of which is EBITDA-based. The first is net debt to cap, which was unchanged from Q4 at 40% versus the 65% covenant. And the second is tangible net worth, which was almost double the $500 million covenant. We will continue to prudently manage costs, capital expenditures and liquidity to protect balance sheet flexibility. And with that, we're going to jump right into questions.

And so I'll turn things over to the operator, who will open up the lines.

Questions and Answers:

Operator

[Operator Instructions] Our first question today comes from John Babcock from Bank of America.

John Babcock -- Bank of America -- Analyst

Good afternoon. I just want to quickly follow-up on capex. I was wondering if you could kind of talk about the projects, I guess, that you're kind of sidelining at this point. And also, I was wondering, how long could you keep capex at that $35 million level?

Robin E. Lampard -- Senior Vice President And Chief Financial Officer

John, it's Robin. Yes. So I'll answer the second one first. I would just point you back to 2008 during the global financial crisis. We kept capital at that minimum sustaining level for five straight years. So that's our track record. If things get that difficult, we could keep it we could keep sustaining capital very low for many years. It wasn't a whole there wasn't anything individually significant that we cut out of the budget for this year to reduce the $25 million out of capex.

We only really have the two significant projects going on this year, as you know. That's Inverness Phase 2, which, as you heard Peter say, is largely complete. And we had been investing a little bit in Chambord, where also the activity on that side has slowed right down for multiple reasons. So it's really just cutting out all the other small projects that we would have liked to do but aren't essential at this point.

John Babcock -- Bank of America -- Analyst

Okay. And with regards to Inverness and realizing you generally tend to produce to demand, I was wondering with Inverness kind of still ramping up and given kind of the overall situation with COVID-19, is there ultimately sufficient demand for Inverness to continue ramping up production at this pace?

Peter C. Wijnbergen -- President And Chief Executive Officer

John, I'll take that one. Well, interestingly enough, OSB demand on the continent has continued throughout this period. So our mill in Belgium has continued to run flat out. For a lot of our demand growth in Europe is predicated on continued substitution for imported materials from South America, from Asia. And we believe that, that trend will continue, and we're seeing that continue. So that is really the foundation for our growing volume out of the Inverness mill.

John Babcock -- Bank of America -- Analyst

Okay. And then back to North America, you announced kind of the reduction in operating capacity for by 35% in April. Is that about how much demand was down? And then also, I was wondering if you can kind of talk about how trends have kind of evolved into May here?

Peter C. Wijnbergen -- President And Chief Executive Officer

Well, it's as you know, there are no real the statistics are not that accurate at that close in. I would say my best estimate is that demand, the reduction in demand is responsible for some of that. But we also believe that the customers who supply the new home construction segment have actively reduced their inventory levels even below what they were already down to, which is understandable given the level of uncertainty.

John Babcock -- Bank of America -- Analyst

Okay. And any color you can kind of provide on how order files, I guess, stand right now?

Peter C. Wijnbergen -- President And Chief Executive Officer

Well, I would say that we have been pleasantly surprised by the level of business that we're seeing over the last number of weeks. In my prepared remarks, I referred to the fact that builders have seen activity improving over the last three or four weeks. And throw that in combination with the fact that the pro dealers who are between us and the builders have very low inventory levels, have meant that we have seen healthy order intake over the last three or four weeks.

John Babcock -- Bank of America -- Analyst

Okay. And have you and then just kind of last question before I turn it over, have you announced any sort of downtime for May?

Peter C. Wijnbergen -- President And Chief Executive Officer

Well, I think we in our public disclosure around downtime, which we published at the end of March, we sort of said that we have adopted this flexible schedule that allows us to increase or decrease according to the available demand. We also said that we wouldn't make any further announcement with regard to that. And you may recall that in the past, for antitrust reasons, we only report on downtime after we have taken it, and we will stick with that policy going forward. But our policy, as you know, has always been to only produce what we can sell. And so we'll stick with that mantra.

John Babcock -- Bank of America -- Analyst

Okay.

Peter C. Wijnbergen -- President And Chief Executive Officer

Okay. Thanks, John

Operator

Our next question comes from Ketan Mamtora of BMO Capital Markets.

Peter C. Wijnbergen -- President And Chief Executive Officer

Thank you. Ketan? We can't hear you.

Robin E. Lampard -- Senior Vice President And Chief Financial Officer

Ketan, are you still there?

Ketan Mamtora -- BMO Capital Markets -- Analyst

I would imagine that some of...

Robin E. Lampard -- Senior Vice President And Chief Financial Officer

Ketan, sorry to interrupt you. You stopped we couldn't hear you after you said hello. So you need to start again, please.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Is this better?

Robin E. Lampard -- Senior Vice President And Chief Financial Officer

Yes.

Peter C. Wijnbergen -- President And Chief Executive Officer

I can hear you now.

Robin E. Lampard -- Senior Vice President And Chief Financial Officer

I can hear you, yes.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Okay. Sorry about that. I was just curious, just wanted to understand a little bit better in terms of how some of the end market trends are. As you talked about in your prepared remarks, it sounds like R&R is doing a little bit better, but some of the industrial end markets, especially on the furniture side, maybe a little bit weaker. If it's possible, give us sort of some maybe if it's possible to quantify how some of those end markets are doing and how they have continued into the second quarter?

Peter C. Wijnbergen -- President And Chief Executive Officer

I'll do my best. As I mentioned already, the R&R side has remained steady and strong, it's in line with previous years. Housing, I already talked about at the last question. So we have seen a decline in demand for our new home construction, primarily during the end of March and the first half of April, we're starting to see that market recover now at least in the sort of the near term. In terms of our industrial demand, certain aspects of the industrial demand have continued straight through.

But people with heavy manufacturing facilities where there's lots of people working close together, they have had to curtail their business, they were not deemed essential. That business is starting to come back now. And I would sort of say it's I'm maybe guessing a bit here, but sort of a 50% level for the quarter is probably a reasonable estimate from my perspective at this stage. And industrial volume is maybe 15% to 20% of our total sales.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Understood. That's helpful. And then just turning to capex again. So just help me understand, so you've got it down to $75 million, but of the bare minimum that you have is about $35 million. And it sounds like kind of $18 million is left on Chambord. So one, how are you thinking about spending that remaining $18 million? Is it something at this point you think that you would want to wait until year-end and more of a 2021 kind of spend? Or and then kind of what are the other big buckets that will bridge from $35 million to $75 million?

Peter C. Wijnbergen -- President And Chief Executive Officer

Yes, Ketan, obviously, there's no urgency on the Chambord spending at the moment. Moreover, construction activity has been stopped completely in the provinces of Quebec. So we haven't been able to spend any money even if we would have wanted to. It's obviously an area where our spending is going to be minimal until we get a better perspective on the market recovery.

A big chunk of the remainder is the completion of the Inverness Phase two project. And Robin already mentioned to you that we expect to have that project completed before the end of the year. There's a lot of most of the mechanical installation is complete as of today.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it. And so what is left in Inverness is about $10 million if my math is right, Robin, there?

Robin E. Lampard -- Senior Vice President And Chief Financial Officer

Sorry, left on oh, for Inverness. Yes, that sounds about right. Yes.

Peter C. Wijnbergen -- President And Chief Executive Officer

In that range.

Robin E. Lampard -- Senior Vice President And Chief Financial Officer

In that range.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it. That's very helpful. I'll turn it over. Good luck. Thanks guys

Operator

Our next question comes from Sean Steuart of TD Securities.

Sean Steuart -- TD Securities -- Analyst

Good afternoon. Thanks. A couple of questions. Robin, can you help us with, I guess, some of the other liquidity levers you can pull beyond lower capex and Q2 working cap declines? Can you go through some of the other variables that might be in play? And I'm thinking of expense deferrals, tax refunds, things of that nature. Any other variables we can expect to help support liquidity in the midterm?

Robin E. Lampard -- Senior Vice President And Chief Financial Officer

Sure. Yes. I mean, obviously, one of the things we've done is look at all discretionary costs and reduce them to the extent we can. Obviously, things like travel has come down significantly. It's almost been eliminated in the last two months as an example. But I will note that we last year, when we curtailed 100 Mile House and Cordele Line 1, we have our philosophy has always been whenever we have curtailed significant operations, we've taken the equivalent amount out of our overhead. And so we already streamlined our SG&A last year, which will benefit us through this year. But obviously, we could do more there if we if that made sense, if we face ongoing significant curtailments. So that's on the overhead cost front.

And in terms of things like tax deferrals, yes, of course, we're we are taking advantage of all of those opportunities where they exist. There have been things like payroll taxes, where you can defer VAT in the U.K., those kind of things. We're taking advantage of all those opportunities to just defer the outflow of cash where that's permitted. And then on the income tax front, you will have seen we already got a significant refund in the first quarter. And there's still a receivable on our balance sheet. So there will be more to come in the future. And so we are taking advantage of all those levers.

Sean Steuart -- TD Securities -- Analyst

And I think it's a $40 million receivable you still have that is phased in over the next 12 months? How should I think about that?

Robin E. Lampard -- Senior Vice President And Chief Financial Officer

It won't all be 12 months, but some of that would be related to filing 2020 returns, which would we wouldn't be able to get that cash until next year.

Sean Steuart -- TD Securities -- Analyst

Okay. And last question for me, Peter, if Inverness Phase two is wrapped up by year-end, I think the previous guidance was it's an extended ramp-up of the incremental capacity. Assuming demand starts to normalize in Europe, how should we think about the incremental capacity there being phased in into 2021?

Peter C. Wijnbergen -- President And Chief Executive Officer

Well, Sean, I think we have talked to you in or we have talked in general about 100 million feet or 100,000 cubic meters per year over the sort of four to five year period that we're ramping up. And I don't see any reasons why we should deviate or why we would need to deviate from that at this stage. A lot of this is substitution, right? It's not necessarily depending on new demand creation.

Sean Steuart -- TD Securities -- Analyst

Got it. That's it from me. Thank you very much

Operator

Our next question comes from Mark Weintraub of Global.

Mark Weintraub -- Global -- Analyst

Thank you. First question, given the unusual nature of dynamics, curious if random lengths pricing is still a good proxy, a very good proxy for following your realizations?

Peter C. Wijnbergen -- President And Chief Executive Officer

Yes, Mark, that's always a tough one. It's a tough one for us as well. I would say that random length is a reasonable proxy for market reflecting of market activity at the moment. I think even in some regions where in the past, we have had some concerns, seems to be it seems to be a reasonable approximation of what's going on at the moment. The challenge in markets that fluctuate wildly up and down is that we have the lag effect, first of all, which always it always makes it difficult to sort of reconcile to our realization.

In addition, some of our industrial products are on more fixed long-term pricing. So in a very high-level market, those prices will look lower. And in a poor pricing environment, those kind of prices will look higher. So that those are the two major moving parts that make it always difficult to reconcile to random length [sprints]. If you should think of Q1, I think our do we are those numbers public or they're not?

Robin E. Lampard -- Senior Vice President And Chief Financial Officer

Yes, you can I'll just step in here. It's better if I talk to the numbers. The if you come back into our realization versus a regionally weighted benchmark, Mark, as I know, I think you've done you do that yourself. We were 108% in the first quarter versus 120% in the fourth quarter. And obviously, that difference is related to that lag effect that Peter just outlined. And I would just also remind everyone that only about three-four of our volume in North America is tied directly or indirectly to random lengths. The one-four, the 25% [roughly] of our volume that is going into specialty end uses is delinked from random lengths and negotiate a pricing that doesn't move up and down with random lengths.

Mark Weintraub -- Global -- Analyst

Great. And could we also get a sense as to where April was either relative to those benchmarks or where it was relative to the first quarter?

Peter C. Wijnbergen -- President And Chief Executive Officer

You'll have to wait to our next quarterly results, sorry. I haven't done that math yet, myself.

Mark Weintraub -- Global -- Analyst

No problem. And then on the cost side, can you give us a flavor of what's going on with wood, resins, energy?

Peter C. Wijnbergen -- President And Chief Executive Officer

Well, I mean, wood prices, as you've heard us say for a long time now, have barely moved, if at all. So they're quite flat. They remain that way. At the moment, really across the board. Obviously, on an aggregate basis, they might be down slightly because our 100 Mile House mill in BC was our by far and away, our highest cost wood cost mill, and it's obviously not taking any wood at the moment.

Resin prices are dropping, and there is a link there, indirect link, mind you, to energy prices or oil prices. And on the same, energy is a small, relatively small portion of our cash manufacturing cost. Most of that is electricity. But there's a small portion that is natural gas, and those costs, obviously, have continued to be quite low.

Robin, I don't know if you can provide any specifics there.

Robin E. Lampard -- Senior Vice President And Chief Financial Officer

No, no.

Peter C. Wijnbergen -- President And Chief Executive Officer

No. Okay. Good. So that gives you perspective. And we think our cost I think in the AGM, I mentioned the fact that we've seen costs continue to decline in March and April despite the fact that we have had to deal with curtailments.

Mark Weintraub -- Global -- Analyst

Right. And then I guess the last part because maybe one could come out fairly favorable from much of what's been said. And then the last part is, I guess, the absorption of fixed costs, given that you are producing a lot less, and you've taken some actions. But is it possible to get a ballpark number of what to use at what percentage is fixed costs and kind of modeling in a significantly lower-volume environment?

Peter C. Wijnbergen -- President And Chief Executive Officer

Well, I think, Mark, I've talked you through the major cost factor. So wood is about one-three of our manufacturing, cash manufacturing costs. Resin is about one-four. Energy is about 10%. So that gets me to...

Robin E. Lampard -- Senior Vice President And Chief Financial Officer

Call it 70%.

Peter C. Wijnbergen -- President And Chief Executive Officer

70%, so the remaining roughly is variable or fixed. But the current environment with all the government programs that are out there have sort of had the fact that some of our fixed costs has become variable, at least in the short term. So the current percentage is probably slightly lower than that.

Mark Weintraub -- Global -- Analyst

Okay. Actually OK, very helpful Thank you.

Peter C. Wijnbergen -- President And Chief Executive Officer

Thanks, Mark

Operator

Our next question comes from Paul Quinn of RBC Capital Markets.

Paul Quinn -- RBC Capital Markets -- Analyst

Against in the good morning for me. All right. And the, but certainly feels like Just following up on this cost question. I think, Peter, you mentioned that costs tracking into Q2 are down quarter-over-quarter. And I'm just trying to I suspect the input costs are still coming down, especially on the energy and the resin side. But I'm just wondering the effect of the downtime, is that holding your costs flat? Or is it pushing it up? Or is it continuing to come down?

Peter C. Wijnbergen -- President And Chief Executive Officer

Well, I think in my public comments earlier, I mentioned the fact that we have seen costs continue to decline in March and April. April, we took a lot of downtime. And you're right, we have a couple of benefits at the moment. One is declining resin prices on the back of these very low oil prices. At the same time, our Canadian capacity is benefiting from about 70% of our Canadian manufacturing cost is Canadian dollar based and the Canadian dollar is...

Robin E. Lampard -- Senior Vice President And Chief Financial Officer

$0.70.

Peter C. Wijnbergen -- President And Chief Executive Officer

Is at $0.70 compared to $0.76 not so long ago. So those are a couple of things that are really playing in our favor. I also mentioned that some of our traditionally fixed cost is a little bit more variable at the moment because of all the government programs that are available to employees. So I mean it's early in the quarter, so but I'm pleased with the direction our operating team is able to manage this in North America.

Paul Quinn -- RBC Capital Markets -- Analyst

Okay, great. And then just we've seen an uptick in OSB pricing in North America in the last two weeks. Do you attribute that to demand coming back? Or is that inventory destocking that you talked about earlier in the call? It's sort of reached its max, so any uptick in demand is going to flow through in price?

Peter C. Wijnbergen -- President And Chief Executive Officer

Yes. I think it's probably the combination of those two things, Paul. I think we keep talking about inventory is about as low as it gets and then it gets even lower. Obviously, people have taken this period of extreme uncertainty to do the right thing, which is absolutely minimizing their working capital and taking inventory down, so that they are they have a more flexible operating model, just like our model is more flexible today than it would have traditionally been. So I think it has reached sort of an absolute minimum level. At the same time, we're starting to see demand recovering for several reasons, at least from the low let's say, the low point, most people tell me, builders, in particular, tell me, was at the end of March.

So we have since seen things improve because, first of all, there's a bunch of states where which are being reopened for construction. Secondly, builders tell me that they are starting to sell homes again at a better clip than they had expected. We're starting to see industrial demand come back as I mentioned earlier. And R&R demand continues to be really strong. So it's probably a combination of improving demand, at least in the short term, combined with inventories that cannot shrink any further. Okay. That's helpful. And then just flipping over to Europe, it looks like OSB price is sort of [tiered]. Do you see this as the bottom in the the bottom of the pricing cycle in Europe? Or how should we think about that? Yes, I would say, as I mentioned earlier, Paul, demand on the continent really seems to have continued to be really strong throughout this whole period. That really took us by surprise, but nonetheless, a pleasant surprise. And so it looks like things have bottomed out there. In the U.K., it's probably a bit early to tell whether we have indeed reached the bottom. Early indications might suggest that, but we're still that market is still starting to come back and being reopened as we speak. So I'd rather reserve judgment until a month or two from now.

Paul Quinn -- RBC Capital Markets -- Analyst

Okay. Great. And just lastly, just on export markets out of North America into Asia. What's what happened in Q1? Did you see a big drop-off in that as COVID-19 took over? And have you seen that order fall, pick back up?

Peter C. Wijnbergen -- President And Chief Executive Officer

In fact, in the first quarter, I think we were pretty much in line with previous quarters for our export volume, then putting in a proportion that represents less than 5% or about 5%, I believe, of our total North American production. There's a bit of shuffling between the different markets. I think the volume to China has increased a little bit recently. The volume to basically we ship to three markets, right, to Vietnam, China and Japan is our biggest market.

The Japan volume has been quite strong. The only competition we have there is from Europe. And I think transportation costs have become a huge hindrance for that long-haul shipping of containers back from Europe to Japan. So it's a bit of reshuffling of where the volumes go, but in total, it's more or less in line with what we've seen in previous quarters.

Paul Quinn -- RBC Capital Markets -- Analyst

Sorry I hear were much more I can hear you. Sure. I said that very much. Best of luck going forward.

Peter C. Wijnbergen -- President And Chief Executive Officer

Thanks for. And thank you all. Our pleasure

Operator

Okay. Our next question comes from Andrew Kuske of Credit Suisse.

Andrew Kuske -- Credit Suisse -- Analyst

Thank you. Good afternoon. I guess the question really revolves around your rotating curtailments that you've got on your plants and I guess there's just a few sort of interrelated issues. And you mentioned this a little bit earlier on that to a certain degree, you're getting some benefit from stimulus plans that governments may have in a region. You're obviously keeping your people working to a greater degree than they otherwise would be if they shut down a specific plant. And then so there's one benefit. I guess the magnitude of that benefit is the first question. I guess the second question revolves around your customer needs, but this probably positions you better to serve them in a lower-cost fashion.

And then thirdly and the lessons, I guess, we learned from eight and nine was that some of the restarts were painful when things came back. So you probably avoid that once we get back to a normal environment, and you can go full throttle without any issues. Is that latter point fair? And then any color on the first two issues would be appreciated.

Peter C. Wijnbergen -- President And Chief Executive Officer

Yes. I think the point is absolutely fair. And what we focused on is sort of pairing up mills in certain regions, so that we have an ongoing supply in every region where there is demand and show that way. And then secondly, we can sort of reduce this rotating shut volume as required if demand improves or increase it if demand declines. And so we think that, that kind of flexibility in the current circumstances is really important.

And the other ways, we do not want to abandon customers who are working very hard on their term to keep the market growing. And so I think this model gives us that flexibility. It's also sort of I think the responsible way to deal with our employees. This way, can maintain their health benefits and can maintain an income whether it's supported by the government in certain cases, especially in the states for the period, the short period that they're not working.

The other thing that's kind of interesting observation from our perspective, there's a lot of discussion in the broader economy around restarting. While we are experiencing this across our operations now on a fairly regular basis as people come back after a furlough for a couple of weeks, and we have to go through this. We have had to develop and implement a very strict protocol of coming back to work to make sure that all of our employees remain safe as they have been so far. So I'm not saying that we can teach lessons here, but it's been interesting for us to really sort of have forced ourselves through the thinking process that I believe many industries are going to have to think about here over the next couple of months.

Andrew Kuske -- Credit Suisse -- Analyst

Okay. That's very helpful. And then the second question just relates to your per unit costs were down, which is very encouraging. But I guess, maybe some perspective on how that was tracking at the beginning of the quarter versus the end and then related to that is you had impressive MIP gains in the quarter. So any color, additional color would be great.

Robin E. Lampard -- Senior Vice President And Chief Financial Officer

Yes. I can't really give you like within-the-quarter color, Andrew, but the MIP is indicative of the kind of productivity improvement that we've been able to realize in the quarter. Remember that we consolidated a bunch of downtime from last year by curtailing Cordele Line one and 100 Mile House. And so I think that's part of what we're seeing now in the first quarter.

And as Peter just outlined, this rotating curtailment, flexible curtailment configuration that we have in this current environment, we're doing we're finding a way to do it in as cost-efficient way as we can. And that's we're happy to see that in our unit cost.

Peter C. Wijnbergen -- President And Chief Executive Officer

And we're seeing some payback of investments we've made over the last couple of years as well, which is why you're seeing some of this MIP now coming up as well.

Operator

Ladies and gentlemen, that concludes the question-and-answer session. I would now like to turn the call back to Mr. Peter Wijnbergen for any additional or closing remarks.

Peter C. Wijnbergen -- President And Chief Executive Officer

Well, thank you, Kevin. As always, Robin, Heather, Robert and I are available to respond to further questions, if any. I want to thank all of you for taking the time to participate. Stay safe out there, and we look very much forward to reporting on our progress next quarter. Have a good afternoon. [Operator Closing Remarks]

Duration: 40 minutes

Call participants:

Peter C. Wijnbergen -- President And Chief Executive Officer

Robin E. Lampard -- Senior Vice President And Chief Financial Officer

John Babcock -- Bank of America -- Analyst

Ketan Mamtora -- BMO Capital Markets -- Analyst

Sean Steuart -- TD Securities -- Analyst

Mark Weintraub -- Global -- Analyst

Paul Quinn -- RBC Capital Markets -- Analyst

Andrew Kuske -- Credit Suisse -- Analyst

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