Domtar Corp (UFS) Q4 2020 Earnings Call Transcript

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Domtar Corp (UFS)
Q4 2020 Earnings Call
Feb 11, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen. Welcome to the Domtar Corporation Fourth Quarter and Full Year 2020 Results. [Operator Instructions] As a reminder, this call is being recorded. Today is February 11, 2021. I would now like to turn the meeting over to Mr. Nicholas Estrela. Please go ahead.

Nicholas Estrela -- Director, Investor Relations

Thank you, Orlando. Good morning, and welcome, everyone, to our fourth quarter and full year 2020 earnings call. Daniel Buron, Senior Vice President, Chief Financial Officer and Interim Chief Executive Officer, will be hosting the call today, as John is on temporary medical leave. During the call, references will be made to supporting slides, and you can find this presentation in the Investors section of the website. As a reminder, all statements made during the call that are not based on historical facts are forward-looking statements subject to a number of risks and uncertainties, many of which are outside our control. I invite you to review Domtar's filings to the securities commissions for a listing of those.

Finally, certain non-U.S. GAAP financial measures will be presented and discussed and you can find the reconciliation to the closest GAAP measures in the appendix of this morning's release as well as on our website. As a reminder, Personal Care results were classified as discontinued operations for all periods presented in the earnings release and the accompanying investor presentation as of the fourth quarter of 2020. Results from continuing operations represent our Pulp and Paper segment and corporate shared services and overhead. Pulp shipments to Personal Care are also considered to be third-party shipments. So with that, I'll turn it over to Daniel.

Daniel Buron -- Senior Vice-President and Chief Financial Officer

Thank you, Nick, and good morning, everyone. As you know, John is on temporary leave after contracting COVID-19, and the Board has asked me to take on the Chief Executive responsibilities while he's out. I'm giving frequent updates on John's health, and I'm pleased to report that he's doing well, resting at home. 2020 was anything but an ordinary year. The impact of the global pandemic on the economy and on Domtar was dramatic and unmatched in the recent history. It resulted in a significant restructuring and downsizing of Domtar Paper business, with over 900 of our colleagues leaving Domtar and the suspension of our capital allocation program. Throughout this time, however, we stay true to our values, and we have accomplished a great deal. Our teams demonstrated resiliency by continuously adapting to changing market conditions. We kept our operation running efficiently, improved our processes and made our company stronger. We focus on our people, taking consistent action to protect them and to support our communities.

At the core of our efforts were rigorous and disciplined COVID prevention protocol put in place for all our location across the business. Our protocols changed many day-to-day operating procedure and require active participation of all employees. In the course of managing the pandemic, we also recorded our lowest ever safety incident rate. We are really proud of our employees' response in this challenging 2020. In Paper, our ability to adjust quickly reflects the agility of our teams as well as the optionality of our asset base. We maximized cash, reduced costs and remained a reliable partner to our customer. We've reduced our capacity and inventory by idling nearly 40% of our production in the second quarter, leading to a 25% permanent reduction by year-end. By focusing on cost reduction across the business and removing some of our highest cost manufacturing assets, we've reduced our Paper cash cost by nearly 6% year-over-year and by 10% in the second half of 2020. Our smaller network also allowed us to improve our customer mix. In Pulp, we grew -- volume grew by 7% in 2020 as we've converted paper to pulp capacity. Tissue, towel and personal care end-use market had very strong demand throughout the year and kept our order books full. We stayed focused on customer mix and value proposition to improve our margin. We also continued to ramp up our investment in high-return projects to optimize and drive efficiency and performance across our Paper asset -- sorry, Pulp asset.

In Personal Care, we continue to provide essential product during the pandemic and executed well on our customer win. Our teams did excellent work to improve profitability, gain new customer and to improve the operating structure and cost profile of the business. Profitability increased 42% versus prior year, and margin improved 320 basis points. Now with respect to our strategic road map, we are proud of our accomplishments in 2020. First, we've reached an agreement to sell the Personal Care business. Second, we've launched our first linerboard conversion at Kingsport. And we initiated a preliminary engineering study for the addition of a low-cost linerboard line at Ashdown, taking advantage of the scale fluff pulp operation and surplus pulping capacity. Third, we announced a $200 million cost reduction program to focus and align the organization on our transformation and to establish even greater accountability for performance. Let me take a moment to expand on these three initiatives. We've entered into an agreement to sell the Personal Care business to American Industrial Partners for $920 million. For Domtar, this transaction accomplishes several key objectives. First, it is a significant milestone in our ongoing portfolio transformation and our focus on building an industry-leading paper, pulp and packaging company.

The transaction provides Domtar with capital and resources to invest in our future and will also lead to a more optimized business portfolio. With the proceeds, we expect to reduce debt by approximately $600 million. Our strong balance sheet and liquidity will position us for resiliency and growth, and will be an important pillar in providing flexibility to maximize value creation. We also plan to buy back about $300 million of shares. As you will recall, we suspended our capital allocation program early in 2020 to preserve cash. Today, we announced that we are resuming our stock buyback program. This decision demonstrates our confidence in Domtar's future and our commitment to delivering value to our shareholders. In terms of cost reduction, we are on track to realize the full $200 million of annual run rate savings by the end of 2021. In the third quarter of 2020, we've launched a series of initiatives, including business optimization, manufacturing cost reduction and the rightsizing of our support functions. We constantly work to lower our costs and that entails reduced complexity. Completing the execution of our cost reduction program is a priority for 2021. Our strategic choices on portfolio productivity and organization structure are not independent strategies. They reinforce and build on each other.

This initiative will create a more empowered, agile and accountable organization and will help us deliver on our financial goals. In 2020, we confirmed our entry into the growing packaging market with the announcement of the conversion of our Kingsport mill to containerboard. We have an experienced and competent team in place responsible for asset conversion, commercial strategies, business processes and operational readiness. We are also establishing a comprehensive fiber procurement strategy. We have identified a significant number of recovered paper supplier with over 100 locations which can cost effectivity supply fiber to Kingsport. This will allow for a very efficient supply chain model and will enable us to utilize low-cost backhauls to bring recovered paper to the mill. The team has made great progress in 2020. Our major equipment is in order, and the project is on schedule for a 2022 start-up. Since announcing our entry into the packaging space, we have had significant interest from independent box converters and end-use customers. Our commercial efforts are focused on a healthy group of potential customer and we continue to expand our opportunity pipeline. The Kingsport conversion and preparation for the containerboard launch is also a focus of 2021 and the centerpiece of our growth going forward.

Overall, we have a clear road map to create significant long-term shareholder value by focusing on our portfolio around paper, pulp and packaging. With Paper, we have a leading market position in North America with low-cost and well-invested paper mills. We also have the best customer in the industry and a rich product portfolio that includes growing grades. We have a solid and high cash-generative business that can yield attractive return even in the most challenging environment. In Pulp, as our capacity increases, we are focused on the highest growth segment, including global hygiene and tissue and towel markets. We have a very competitive Pulp asset with the potential to further increase our performance through strategic investments and drive our mills toward first quartile.

And finally, we will also enter the containerboard market with highly competitive asset and a differentiated go-to-market strategy. Looking now at our Q4 financial results, beginning in slide four. We reported this morning a net loss of $1.07 per share for the fourth quarter compared to a net loss of $1.67 per share for the third quarter of 2020. The fourth quarter results include an after-tax loss of $0.78 per share from discontinued operations compared to earnings of $0.34 per share for the third quarter of 2020. Our earnings from continuing operations before items were $0.34 per share in the fourth quarter compared to a loss of $0.02 per share in the prior quarter. In the fourth quarter, we recorded $25 million of accelerated depreciation and $30 million of restructuring costs related to our cost reduction program. EBITDA before items from continuing operation amounted to $91 million compared to $87 million in the third quarter. Including the results of Personal Care, EBITDA before items was $124 million in the fourth quarter. Turning to the sequential variation in earnings on slide five. Consolidated sales were $21 million higher than the third quarter. Depreciation and amortization was $3 million lower and SG&A was $6 million lower when compared to the third quarter. In the fourth quarter, we recorded an income tax benefit of $16 million. Now turning to the cash flow statement on slide six. Cash flow from operating activities amounted to $135 million, while capital expenditures amounted to $45 million.

This resulted in free cash flow of $90 million in the fourth quarter. For the full year, cash flow from operating activities amounted to $411 million and capital expenditures amounted to $175 million. This resulted in free cash flow of $236 million for 2020. Turning to the quarterly waterfall on slide seven. When compared to the third quarter, EBITDA before items increased by $4 million due to lower maintenance for $10 million, higher productivity for $10 million, lower SG&A for $7 million and lower raw material costs for $1 million. These were partially offset by lower selling prices for $7 million, higher other costs for $7 million, lower volume and mix for $5 million, higher freight costs for $4 million and unfavorable foreign exchange rate of $1 million. Our Paper business on slide eight. Sales were 1% lower versus last quarter and were 17% lower versus the same quarter last year. Estimated EBITDA before items was $105 million. Manufactured paper shipments were 1% lower when compared to the third quarter and 17% lower when compared to the same period last year. Average transaction prices for all our paper grades were $2 per ton higher than the last quarter due to customer and product mix. Let's turn to the Pulp business on slide nine. Sales were 9% higher versus the last quarter and 8% higher than the same period last year.

Estimated EBITDA before items was a negative $5 million. Pulp shipment were 14% higher versus the third quarter and 10% higher when compared to the same period last year. Average pulp prices decreased $17 per metric ton versus the third quarter. Let's look at Page 10 now. Our Paper inventory increased by 10,000 tons when compared to last quarter, while Pulp inventory decreased by 3,000 metric ton. As usual, you will find on Slide 11 and 12, our estimate for some key financial items for the coming year. With respect to maintenance, our total maintenance cost for the year are expected to decrease by $13 million to $421 million. Capital spending should be between $310 million and $330 million and includes costs related to the Kingsport conversion and some strategic investment in our Pulp business. Before I discuss the outlook, let me provide some additional color on the fourth quarter. Our Paper business was steady with total shipments in line with the prior quarter. Other activity was stable across all channels. Office supply continued to recover, and we had a strong performance in food, security, medical and thermal paper grade.

We also reduced flex ton and exports in the fourth quarter, which improved our mix. In addition, we've used the seasonally slower period to replenish low inventory level ahead of paper maintenance planned in the first half of 2021. Pricing remained relatively stable and consistent with the year-to-date average. Strong paper productivity and capacity utilization in our mill system resulted in a good cost performance. This continued the trend that we've seen in our core paper mills over the last few quarters. The Port Huron mill is scheduled to seize operation by the end of the current quarter. We are transferring a large portion of their grades to other mills to continue to support key customers. In our Pulp business, we've shipped over 480,000 tons in Q4, the highest quarterly volume of the year and one of our best in recent history. We had strong cost performance attributable to lower maintenance as well as our cost reduction program. Supply and demand dynamics continue to improve, and we announced several pulp price increases over the last few weeks.

The recovery in global pulp market has been driven by a few items. Demand in China increased substantially in Q4 as did maintenance and unplanned downtime in the second half of 2020, improving the market supply and demand balance. Inventory at the producer level are also low, and we believe that stock in Chinese ports are decreasing. In Personal Care business, we had a strong finish to the year. Our performance increased on strong sales of adult incontinence products in North America and a good performance in Europe following the seasonal impact of the softer summer months. Our sales performance reflects good momentum in the core business and solid demand. Now let's review the outlook for 2021. As we've noted in prior quarters, our outlook could be impacted by changes in market condition, especially due to unforeseeable pandemic-related impacts. In Paper, demand remains uncertain and dependent upon recovery from the pandemic, largely linked to the return to office and school. As the year progresses, demand should start to accelerate as vaccination increase and people gain greater confidence to return to offices and school. We expect near-term pulp market to gradually improve, while cost inflation should be moderate.

The sale of the Personal Care business is expected to close in the first quarter of 2020, and we have received regulatory approval in Europe and are expecting the North American approval in the next couple of weeks. In closing, despite the challenges of 2020, we've achieved strong results, and we'll continue to focus on keeping our operations safe. I'm proud of the teamwork in 2020 that allowed us to move the company forward in accordance with our strategy despite challenging times. We've met many goals last year, especially in cash management and cost reduction, while remaining an agile, reliable partner to our customer. We believe these changes will improve the company for the long term. As the world starts to emerge from the pandemic, and as market improves, we are well positioned to capture opportunities and to serve our market and our customer. We are in a multiyear process of transforming Domtar, and we look forward to more progress in 2021.

Thank you. I will turn the call back to Nick. Nick?

Nicholas Estrela -- Director, Investor Relations

Thank you, Daniel. So with that, I'll move it over to Orlando to open up the line for questions.

Questions and Answers:

Operator

[Operator Instructions] And we will take our first question from Anthony Pettinari with Citi. Please go ahead.

Randy Devin Toth -- Citigroup Inc -- Analyst

Good morning, guys. This is actually Randy Toth sitting in for Anthony.

Daniel Buron -- Senior Vice-President and Chief Financial Officer

Good morning.

Randy Devin Toth -- Citigroup Inc -- Analyst

This is actually Randy Toth sitting in for Anthony. I just wanted to focus on Pulp. Can you touch on just pulp pricing a bit? We've seen some pretty aggressive announcements by competitors over the last month or so, particularly on the fluff side, but less so on the softwood side. Is there anything driving particular strength in fluff that wouldn't affect the softwood side? And then additionally, how are realization in pulp quarter-to-date versus 4Q?

Daniel Buron -- Senior Vice-President and Chief Financial Officer

All right. So let me share a little bit on that. That's a good question. That's definitely part of the recent development. So we've announced a series of pulp price increases. I think captured yesterday night the last leg of the month of March, actually, from us. So in total, we've increased our pulp price in North America, between $175 per ton to $240, depending on the grades. And in China, I think it's between $150 and $200, again, depending on grades. So we believe we'll see the benefit of those price increases. As always, China has a more immediate impact in our P&L. China is a net price and is next month always. So it's implemented rather quickly. North America, the announcement are always before discount, and the discount, I think, in 2021, around 40%, 42% on average. Plus, there is some contractual obligation in the U.S. that will delay a little bit of the impact on our P&L. So, so far, I can share with you that our pulp shipment in January were strong. And our price increase versus where we exited Q4 by about $30 a ton.

Randy Devin Toth -- Citigroup Inc -- Analyst

Okay. Understood. And then maybe just staying on the pulp side. Can you just update us on how Pulp operations at Ashdown are running. I think previously, you had planned to switch from hardwood bale to softwood bale in 1Q. Is that still on pace? And then just maybe your mix expectations for Ashdown specifically in 2021?

Daniel Buron -- Senior Vice-President and Chief Financial Officer

Okay. Good. Good question. Thank you. The conversion in Ashdown to full softwood is done. I mean we're still in the ramping mode. So we're not at the speed. We will be soon, but it's going well. So Ashdown should produce more or less 700,000 tons of pulp per year with a capacity of about 500,000 tons of our new ones, which is the fluff line, but that can also do softwood bale. And the other 200,000 in a normal pulp dryer that will do softwood bale. So the mix will depend on market conditions. If -- I mean there's obviously contractual obligations so we'll serve our customer. But when we have kind of open tons on sold or spot ton, whatever you want to call it, we're picking always where is the best mill net for the mill. So the mix will swing a little bit, but the mill is set to do 500,000 ton of softwood and 200,000 ton -- sorry, 500,000 ton of fluff and 200,000 ton of softwood bale.

Randy Devin Toth -- Citigroup Inc -- Analyst

Got it. That's very helpful. I'll turn it over. Thank you.

Daniel Buron -- Senior Vice-President and Chief Financial Officer

Thank you.

Operator

Our next question will come from Mark Connelly with Stephens Inc. Please go ahead.

John William Rider -- Stephens Inc -- Analyst

Hey, good morning. This is John Rider on for Mark.

Daniel Buron -- Senior Vice-President and Chief Financial Officer

Good morning.

John William Rider -- Stephens Inc -- Analyst

This is John Rider on for Mark. Let's start off and -- I just wanted to start off on Paper. Could you help us better understand what drove the favorable mix in Q4 and -- which is usually a bit weaker, and what that means for Q1?

Daniel Buron -- Senior Vice-President and Chief Financial Officer

Yes, our pleasure. We took actually proactive action, as you probably recall, last summer, by taking a lot of lack of order downtime that ended up to be a significant permanent reduction of our capacity, 25%. That allowed us to work a little bit on our mix. So we have in Q4 sold way less, what we call flex ton and exports with a lower mill net than North American prime grades. That explains the good performance in our Paper business in terms of pricing in Q4 versus -- I'm with you, I mean, versus what you've seen in many, many years. Normally, Q4 for us was -- Q4 is always kind of a bit weaker, and we're using that time to do a lot of flex and sometimes a bit more export also, and this is -- but what we've been able to avoid this year. So our system in Q4 actually worked very well, almost full. I think we took just 6,000 or 7,000 ton of lack over downtime in a more kind of a niche grade, but the rest of the system actually worked full. So we're very pleased with the realization -- the price realization in Q4.

John William Rider -- Stephens Inc -- Analyst

Okay. Great. And then with Personal Care gone and other moving parts, could you just give us an idea of normal maintenance versus growth capex in 2021's number?

Daniel Buron -- Senior Vice-President and Chief Financial Officer

I mean maintenance in Domtar is -- I mean the Pulp and Paper business should be between $100 million, $120 million per year. We've spent significantly less in 2020. I mean because of the pandemic and the unknown impact, we've made the decision to postpone some capex and to, I mean, actually work very hard to maximize cash flow in the business to be ready and to be able to go through the entire storm. So I mean, normally, $100 million, $120 million. I think, next year, in the number of shareholder throughout the year, there's about $120 million of maintenance capex.

John William Rider -- Stephens Inc -- Analyst

Okay. Thank you.

Operator

And our next question will come from Sean Steuart with TD Securities. Please go ahead.

Sean Steuart -- TD Securities Equity -- Analyst

Thank you. Good morning. A couple of questions, Daniel.

Daniel Buron -- Senior Vice-President and Chief Financial Officer

Good morning.

Sean Steuart -- TD Securities Equity -- Analyst

A couple of questions, Daniel. Wondering if you can give a bit more detail on the strategic investments in Pulp, specific investments you're thinking of, scale of those investments and time line for implementation.

Daniel Buron -- Senior Vice-President and Chief Financial Officer

I mean we've created three years ago, I think kind of a road map for all our Pulp assets. I mean Pulp is a core business for Domtar. This is -- I mean our external capacity is around two million tons. So that's a business that we need to improve over time. So three years, four years ago, we had a road map of different projects that were one by one debottlenecking the asset and reducing their costs. So next year is actually, we take -- we took a pause -- and paused in 2020 for the same reason I discussed earlier. And next year is kind of a -- we're resuming that. So we're going to have a couple of projects to improve profitability and improve throughput. And I think, that I can share and that I want to share. But, I mean, it's also kind of just, I would say, normal, but it's part of our long-term plan to improve our cost position in our Pulp business.

Sean Steuart -- TD Securities Equity -- Analyst

Okay. Second question, and you might have referred to this, and I missed it in your prepared comments, but in the Q4 results, on an annual run rate, do you have a percentage of the $200 million in annual cost savings you're targeting over a couple of years or by the end of 2021, rather? How much of that, if any would've showed up in the Q4 results?

Daniel Buron -- Senior Vice-President and Chief Financial Officer

Thank you for the question. I think it's a great information to share. Our cost saving was threefold. One was manufacturing savings, rightsizing our portfolio and rightsize portfolio of assets or paper capacity, if you will. And the third leg was rightsizing the SG&A or the support functions. A big portion of our cost savings were front-loaded. We've closed the Kingsport asset. We've announced the closure of Port Huron. That was partially closed at the end of the year. I think we'll close this quarter, actually. We've also shut the last paper machine in Ashdown. So a big portion was linked to, let's remove all those fixed costs. So a lot of the savings were front-loaded. So as of year-end, our run rate of the $200 million is around 70%. So there's still 30% that needs to be captured next year. A portion of it is still the capacity rationalization with the closure or the final mill in Port Huron. The rest is still rightsizing their support function where we need to change processes, change stuff, do differently so that we can extract those synergies.

Sean Steuart -- TD Securities Equity -- Analyst

Thanks for the detail, Daniel. Good quarter.

Daniel Buron -- Senior Vice-President and Chief Financial Officer

Thank you.

Operator

And next, we will hear from Adam Josephson with KeyBanc. Please go ahead.

Adam Jesse Josephson -- KeyBanc Capital -- Analyst

I hope you and your families are well. And just wanted to wish John, my very best and a speedy recovery.

Daniel Buron -- Senior Vice-President and Chief Financial Officer

I'm sure he's listening. So -- he probably heard you wishing him well.

Adam Jesse Josephson -- KeyBanc Capital -- Analyst

Good. Very good. Daniel, just on -- update on Kingsport and Ashdown, if you may. Can you just talk about what progress you've made at Kingsport since your last call? And then on Ashdown, obviously John mentioned on the last call that you're in the process of deciding whether you have the capabilities to take on two rather large projects basically at once and that you expected to make a decision sometime this year. So I would appreciate an update on that as well, if you can.

Daniel Buron -- Senior Vice-President and Chief Financial Officer

All right. So Kingsport, everything is going according to plan. So we're in the demolishing phase and demolition will continue into the spring. We've applied for environmental permits that should be obtained in the next four, five -- five to six months. And at that point, we'll start construction. The first aspect or the first construction we'll do is the OCC plan and the OCC warehouse. So we should see that in five, six months. At the same time, progress on procurement, as I've shared in my prepared remarks, we are in discussion with a big bit of the potential recovered paper provider. And I think it's actually very positive in terms of their location and the ability to backhaul the recovered paper after shipping linerboard, so very efficient supply chain. And we're still making progress in our commercial discussion, if you will. A lot of interest. The current market is actually helping to a certain extent. I think we're going through -- or the industry is going through a time where the linerboard is -- or the containerboard is in short supply. So the independent are suffering more than the average. So we have a live example of why aligning with a business like us that will be there for them in good and less good time is great. So I think on the commercial side, we're also making interesting progress. And we'll keep updating you as we know more and as we can share more. I think the second leg of your question was Ashdown? Ashdown, we're still in the engineering study. We're still looking at a handful of different configuration. Key element for us is that -- I mean,we want to be a low-cost producer. So we won't enter -- we won't do a conversion or do something, if we cannot convince ourselves that we're actually very well positioned within the first quartile. What I mean by well positioned, I mean, on the left side of the first quartile in the first cluster, so we're still working toward that. And it needs to make financial sense at the end. So we're in that process. I think you alluded to the fact that John shared that we think we'll be decision-ready. We know what the answer of that work this year. I'm going to just repeat that. I mean I think toward the end of the year, we should have the information that we need to decide if Ashdown is a good candidate for the next conversion.

Adam Jesse Josephson -- KeyBanc Capital -- Analyst

That's great. Two other questions. One on the buyback. Can you talk about the timing of it and the nature of it? Will it be an open market repurchase? A Dutch tender just given the liquidity? How are you thinking about the buyback in terms of how you'll do it and the timing around it?

Daniel Buron -- Senior Vice-President and Chief Financial Officer

Unfortunately, I mean, we haven't made any decision on that yet. We're still exploring what's the best tools. I mean there's no tool open market repurchase, accelerated share repurchase tender and all the different variation of the three tools that we just discussed. I mean this is all in our toolkit, and we're still analyzing that. It's going to start very likely after the close of the transaction in terms of sizable repurchase and that's a discussion we'll have with our Board in a couple of weeks in terms of what's our accommodation, and that's where we're going to make that decision. But we're actually indifferent in terms of tools. I mean what we're aiming at is how can we repurchase our stock the most efficient way and to the benefit of our remaining shareholders.

Adam Jesse Josephson -- KeyBanc Capital -- Analyst

I appreciate that. And just one last one on your paper demand outlook for the year. Obviously, the comparisons will be difficult in the first quarter and then very easy in the second quarter because that's obviously when demand fell off. And then it'll be -- the comps will be kind of neutral thereafter, I would think. How are you thinking about what a reasonable expectation for what demand would be this year just given how long you expect the lockdowns to persist? And again, the EBIT-- the difficult comps in 1Q, easy comps in 2Q, etc?

Daniel Buron -- Senior Vice-President and Chief Financial Officer

Well, it's a good question. I mean it's actually very tough to have a firm point of view of that. I mean if you look at what are seeing in the market, one is I think he is calling for flat year-over-year. If you should look at the 12 months, he is a bit more optimistic with, I think, a 2%, 3% improvement in overall paper demand in North America. And I think is about to review its own forecast because the pandemic is lasting a little bit longer than what it saw first. I mean if we look at it, I mean, January results shipments compared to last year, that was the normal month, I think we're at 15% decline. There's a couple of the shipment being less. So it's more closer to 12%. And there's still a lot of people not working at the office, schools that are not running full. So there's probably a little bit of additional consumption that's going to come out when COVID will be in our rear mirror.

We're kind of cautiously optimistic in terms of them. And we believe that as the year progresses, we should see more paper consumption. Actually, we've done a piece of study that shows that the people that are returning to the office, 85% of those people claim they're different as much as they were prior to being asked to work at home. So if it's true, a portion of the decline that we've seen last year will come back our way. So I mean, overall, I mean, we're confident. Our belief is we're going to see our volume increase. And because of our decision to close capacity late last year, I think we'll have a very, very efficient portfolio of assets and high utilization in our own system.

Adam Jesse Josephson -- KeyBanc Capital -- Analyst

Thanks so much, Daniel. Best of luck in the quarter.

Daniel Buron -- Senior Vice-President and Chief Financial Officer

Thank you.

Operator

And our next question will come from Mark Wilde with Bank of Montreal. Please go ahead.

Mark William Wilde -- BMO Capital Markets -- Analyst

Thanks. Good morning, Daniel.

Daniel Buron -- Senior Vice-President and Chief Financial Officer

Good morning, Mark.

Mark William Wilde -- BMO Capital Markets -- Analyst

I want to think we could start on -- I really have got two areas I want to focus on. One is just the impact of the weaker U.S. dollar in these rapidly rising pulp costs on your Paper business, both in terms of imports of uncoated freesheet, but then also just a question of whether this ultimately has an impact on the North American paper market.

Daniel Buron -- Senior Vice-President and Chief Financial Officer

Let's talk about Pulp first. I mean I think you're raising a good point that the price increase has been announced for China, there's a portion of it that you can say is financed by the currency change, the U.S. dollar being weaker versus the Chinese currency. That's going to help a little bit the Chinese market to absorb those increases. But by the way, those increases are also net-net higher than what we've seen in other markets where the transaction are in U.S. dollar. So yes, I mean, currency is a plus, I think, for pulp price to go through. But I think there's real demand in China. The economy is slowly starting a little bit everywhere. And there's this issue of bringing or transporting the pulp from North America to Asia that is creating a longer supply chain that might be a little bit of an explanation also for the rise in pulp prices. As for Paper, I mean, imports in the U.S. are not large as we speak right now. I don't think -- we're not expecting to see changes there with currency movement or not. So I don't think it's going to have a significant impact in imports and paper consumption coming from the domestic supplier. So I think this is neutral in terms of our Paper business.

Mark William Wilde -- BMO Capital Markets -- Analyst

Okay. So you don't think the fact that Pulp is going up and raising kind of paper producers, production costs in Asia and in Europe will have any ripple back effect into the domestic market?

Daniel Buron -- Senior Vice-President and Chief Financial Officer

I think it's going to have an effect on pulp consumption. If pulp start to be too expensive, paper producer may take action in terms of increasing price or actually stopping producing. But I don't think that's going to have an impact on the uncoated freesheet market in the U.S.

Mark William Wilde -- BMO Capital Markets -- Analyst

Okay. The other question I had is just, are you going to have some tax loss benefits from the sale of the Personal Care business? And if you are, could you quantify those?

Daniel Buron -- Senior Vice-President and Chief Financial Officer

This is a -- there's a small loss. It's going to be a capital loss. So it's only -- you can use it only against capital gains. So it's something that when we're going to add capital gains, we'll have the benefit. But it's not operational loss, therefore, not something we can do against normal profits.

Mark William Wilde -- BMO Capital Markets -- Analyst

Okay. All right. And just one last one, if I could, just to slip in. When do you expect to have any volume commitments for the Kingsport start up. Do you expect you'll have volume commitments at the time of the start up? And does the fact that the market is so tight right now, actually make it a little more difficult to get those commitments because people feel like if they make a commitment to you now, the sense that they might have difficulty getting containerboard over the next 18 months in this very tight market?

Daniel Buron -- Senior Vice-President and Chief Financial Officer

I think you're touching a sensible point. I mean that's been the same thing since the beginning. I mean we, on one side, don't want to ask for commitment too early because we would have to give too much of the economics of our business. And at the same time, our potential customer are afraid of committing and that it become known that they've committed volume to us. So I mean it's kind of a lose-lose situation, if you were to commit right now. But it's our intention to have some commitment before year-end, before the current year. So discussions are progressing very well. Again, reception is great. I think one of the lesson learned in the discussion we had with potential customer is they have a lot of good projects that they'd like to do, but the risk of supply is a big issue that they're facing. So our view is as we grow in linerboard, we're going to see the independent box producer investing further and growing further also. So I think it's a win-win for us and for them.

Mark William Wilde -- BMO Capital Markets -- Analyst

Okay. Sounds good. I'll turn it over. Thanks, Daniel.

Daniel Buron -- Senior Vice-President and Chief Financial Officer

Thank you.

Operator

[Operator Instructions] And our next question comes from George Staphos with Bank of America. Please go ahead.

George Leon Staphos -- BofA Securities -- Analyst

Thanks. Hey, Daniel. How are you doing?

Daniel Buron -- Senior Vice-President and Chief Financial Officer

Good morning, George.

George Leon Staphos -- BofA Securities -- Analyst

I joined the call late, so I apologize if some of this is already covered. First question, I just want to piggyback on the topic actually that Mark raised. So in our coverage of the -- some of the other pulp producers in Latin America, there's a lot of discussion last year about how you did see swing pulp production relative to integrated paper production and the net of it was that at any given time, 0.5 million tons was swinging back and forth. I'm surprised that you think that a pickup in the pulp markets might not ultimately tighten up and help improve the overall commercial outlook, if you will, for uncoated freesheet, recognizing the U.S. is obviously a much more vertically integrated market, but you do get these swing tons that show up from time to time in both products. So anything else that you would share on that front? And then I had a couple of follow-ons in Pulp.

Daniel Buron -- Senior Vice-President and Chief Financial Officer

Again, I think at the margin, it might have an impact. But I mean if you look at the total imported paper in North America, it's not high. So it's reduced a little bit because pulp is being too expensive, they start shipping in the U.S. Yes, it's going to have a small impact. But I fail to see that being a mover. So at the margin, yes. Is it a big mover? I don't think so.

George Leon Staphos -- BofA Securities -- Analyst

Okay. I appreciate it. I don't want to beat the dead horse here. Second thing that we're hearing about this morning from some of the other companies, some of the larger pulp producers is their view that they are at really, really low inventory levels. And then based on their intelligence, and this is obviously the harder part of the equation, and they believe customer inventories are relatively low and recognizing -- in line to relatively low, recognizing there's a big difference between paper grade and fluff customers and the grade itself. What's your view on where your customers' inventories are at this moment as you're trying to push through several increases? And what gives you that view one way or another?

Daniel Buron -- Senior Vice-President and Chief Financial Officer

We share. I mean we're hearing more or less the same thing that you just said. Inventory in China seems to be low. We're hearing that the inventory at the ports are also being reduced. And I've mentioned earlier a little bit kind of the supply chain that is a little bit more long or complex to Asia right now. So you have to assume -- I think you can guess that there's a -- people are trying to replenish their inventory and maybe even create a small buffer given the supply chain issue. So we're hearing the same thing. So there's definitely hard additional positive consumption, plus a little bit of a supply chain issue that are -- and the currency, as we said earlier, of explaining the price increases that we've seen.

George Leon Staphos -- BofA Securities -- Analyst

Yes. And just to be clear, the comments from one of the companies today was that Chinese inventories for at least their customers are higher maybe than average, but lower than what they were seeing in the third quarter, and that's been a consideration in terms of the cycle. I guess, the last question I had for you on this topic. Even though you have price increases in the market, and you've said a number of times, you think fluff is a good place to be in terms of growth. The profitability, as we've all chatted about on these calls over the last couple of years has been perhaps not where you would like it to be. It's great that we're seeing some movement now in pricing but it seems to be being led once again by the commodity grades. And why is this the business that will actually sustain a price and a return above your cost of capital as opposed to being just dragged around by whatever was happening in the commodity markets, where the North American guys, even if it's fluff, are relatively high cost. Why is this a business you still want to be in, given that volatility in your return and a return that's been below your cost of capital from what we can see?

Daniel Buron -- Senior Vice-President and Chief Financial Officer

I think the fluff situation is kind of an interesting one. There's a lot of swing capacity in the southeast of the U.S. A producer that can do both fluff and SBSK as we can do also, as I shared a little bit earlier. And I think you -- we've discussed in prior calls that some application of fluff were requiring less fluff. So there was kind of a dip, if you will, in demand, kind of a onetime event that created kind of that oversupply, if you will. But we're still highly confident that fluff over time, baby diaper, feminine hygiene, adult diapers will continue to grow. And we're a high-quality producer. And I think for long term, this is still a business that we're confident in.

George Leon Staphos -- BofA Securities -- Analyst

Okay. Thank you. I'll turn it over.

Operator

And our next question will come from Paul Quinn with RBC Capital Markets. Please go ahead.

Paul C. Quinn -- RBC Capital Markets -- Analyst

Yeah. Thanks very much and good morning, Daniel.

Daniel Buron -- Senior Vice-President and Chief Financial Officer

Good morning, Paul.

Paul C. Quinn -- RBC Capital Markets -- Analyst

Just a couple questions around Pulp just because you haven't done enough, so let me ask John. Maybe you could remind us your pulp shipments by geography, breaking that down into Asia, Europe and North America? And whether you expect any change in that with the sale of Personal Care?

Daniel Buron -- Senior Vice-President and Chief Financial Officer

We're shipping at about half of our production in Asia and the large portion of what's in Asia is in China and kind of a 10% you're seeing Europe and the rest in North America. And no, we're not planning to have a big shift. I mean we're -- I mean the one change that you're going to see in 2021 is, first, as Nick mentioned in the prepared remarks, our sales through our Personal Care business are now considered third-party sales. So the number we're going to show will be higher. We were selling 100,000 to 100,000 tons to our Personal Care business. We'll continue to sell to at the same level. But that's it. Overall, I mean, our external forecasted capacity is around two million tons. So we should -- you should expect, I mean, 480 in Q4 was very close to what you should see quarter after quarter.

Paul C. Quinn -- RBC Capital Markets -- Analyst

Okay. I apologize for that. That's my new associate there. Just maybe another question just on pricing. That 40% to 42% discount that you mentioned in North America, I mean, I thought it was in high 30s, but it brings up the question of is that the ideal way of pricing pulping? And any discussion in the industry to try to move back to a net basis in North America?

Daniel Buron -- Senior Vice-President and Chief Financial Officer

It would be great. I agree with you, this is adding complexity. It gives the impression that the commodity is very expensive when it's -- I mean if you have a 40% discount, this is definitely less. It's kind of a vicious circle. It started at some point. It's almost impossible to stop. But I mean, if someone finds a way to restart all that, we'll definitely be part of the discussion.

Paul C. Quinn -- RBC Capital Markets -- Analyst

Okay. Thanks very much. Best of luck.

Daniel Buron -- Senior Vice-President and Chief Financial Officer

Thank you, Paul.

Operator

And there are no further questions in queue. I'll turn the call back over to Nicholas Estrela for additional or closing remarks.

Nicholas Estrela -- Director, Investor Relations

Thank you, Orlando. So we will release our first quarter 2021 results on Thursday, May six, 2021. Thank you for listening, and have a great day.

Operator

[Operator Closing Remarks]

Duration: 52 minutes

Call participants:

Nicholas Estrela -- Director, Investor Relations

Daniel Buron -- Senior Vice-President and Chief Financial Officer

Randy Devin Toth -- Citigroup Inc -- Analyst

John William Rider -- Stephens Inc -- Analyst

Sean Steuart -- TD Securities Equity -- Analyst

Adam Jesse Josephson -- KeyBanc Capital -- Analyst

Mark William Wilde -- BMO Capital Markets -- Analyst

George Leon Staphos -- BofA Securities -- Analyst

Paul C. Quinn -- RBC Capital Markets -- Analyst

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