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Report On Business Outgoing Resolute CEO urges Ottawa not to ‘capitulate’ on softwood lumber

Richard Garneau, outgoing president and CEO of Resolute Forest Products, poses in his offices in downtown Montreal on Dec. 14, 2011.

Christinne Muschi/The Globe and Mail

A Canadian industry leader in the fight against U.S. softwood lumber duties who is retiring imminently is urging the government not to "capitulate" during what he expects will be a lengthy battle with the United States.

"We believe in free trade," Resolute Forest Products Inc. chief executive Richard Garneau said in an interview before he steps down Thursday afternoon.

"We believe in having strong principles and never capitulate, even though you believe that (if) there is someone a lot bigger and stronger you have to defend your principles."

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Garneau, 70, has been the strong voice of eastern Canadian lumber, pulp and paper producers.

"I was certainly not happy when in 2006 we had to pay a ransom," he said of the last softwood lumber deal.

Garneau's comments came as weak fourth-quarter results sent the Montreal-based company's shares tumbling.

They were down more than 31 per cent to $9.68 in midday trading on the Toronto Stock Exchange.

"The government has made all the changes on stumpage, I think now we have to fight for free trade."

Garneau said he is encouraged by Foreign Affairs Minister Chrystia Freeland's tough stand defending the industry by challenging U.S. trade actions.

Despite threats of doom and gloom from import duties, the industry has thrived by passing on them on to consumers through higher lumber prices.

Garneau expects that once U.S. housing starts slow, lumber demand will come down and cause some pain to Canadian producers.

"We have to wait and see the impact, but I think history always repeats itself. It seems that the people forget what happened when you take the wrong decision."

During his seven years at the helm of AbitibiBowater, renamed Resolute Forest Products, Garneau has overseen restructuring that he said has made the company stronger.

He has been accused of being heavy-handed by filing lawsuits against environmentalists such as Greenpeace who launched campaigns to discredit the company to customers.

Despite the battles, Garneau said he's been able to improve relations with First Nations, small communities, mayors and unions that depend on the forest sector.

Industry analysts praised Garneau's leadership.

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"I will miss your honesty and more importantly your passion," Paul Quinn of RBC Capital Markets said in a conference call.

"We're certainly going to miss your strong voice in the industry," added Hamir Patel of CIBC World Markets.

Yves Laflamme – currently Resolute's senior vice-president of wood products, global procurement and information technology – has been appointed as a replacement effective Friday.

A 37-year-old Resolute veteran, Laflamme, 61, said he doesn't foresee conducting any major changes, including sticking with all four divisions, even though three face U.S. trade sanctions.

"I'm going to look at all opportunities but of course it's going to be more continuity," he said in an interview.

The leadership change was announced as Resolute disappointed despite swinging to a profit of $13-million or 14 cents per diluted share. That compared with a loss of $45-million or 50 cents per share a year ago. Sales for the three months ended Dec. 31 totalled $898-million, up from $889-million a year ago.

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Excluding special items, the company said it earned $14-million or 15 cents per share for the quarter, compared with a loss, excluding special items of $7-million or eight cents per share in the fourth quarter of 2016.

Patel said analysts expected 62 cents per share in adjusted profits.

For the full year, Resolute reported a loss of $84-million or 93 cents per diluted share, compared with a loss of $81-million or 90 cents per diluted share in 2016. Sales totalled $3.51-billion, down from $3.55-billion.

Excluding special items, Resolute said it earned $12-million or 13 cents per share last year compared with a loss of $12-million or 13 cents per share in 2016.

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