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Domtar Announces Increase in Net Earnings Over Previous Quarter

Monday, August 05, 2002

Press release from the issuing company

August 2 - Domtar Inc. today announced net earnings of $55 million, or $0.24 per common share, and an operating profit of $118 million on net sales of $1.4 billion during the second quarter of 2002. HIGHLIGHTS OF SECOND QUARTER 2002 - Net earnings (before unusual item) amounted to $36 million, or $0.16 per common share. - Operating profit (before unusual item) totalled $90 million compared to $74 million (before unusual item) in the second quarter of 2001, despite a 5% decrease in selling prices. This improvement is mainly due to the contribution of the new four U.S. mills. - Free cash flow for the first half of 2002 totalled $189 million. - Acquisition-related synergies reached an annualized run rate of US$45 million. - Net debt-to-total-capitalization ratio reduced from 55% to 52%. - Domtar-owned Canadian operation Buntin-Reid became the first paper merchant in North America to obtain Forest Stewardship Council (FSC) Chain of Custody certification. "One year after their purchase, our four paper mills in the United States have been successfully integrated and are performing very well. Indeed, we are on track to reach our expected annualized run rate of US$65 million of synergies related to the acquisition by year end, to meet our commitment to further improve our profitability by $100 million by the end of 2003 and to reduce our net debt-to-total-capitalization ratio to 50% by the end of this year," said Raymond Royer, President and Chief Executive Officer of Domtar. "I am satisfied with our second quarter results. Our continued efforts to service customers and to control costs as well as slightly better selling prices during this quarter allowed us to improve our performance over the previous one," added Mr. Royer. OPERATIONAL REVIEW Operating profit in the PAPERS segment reached $60 million in the second quarter of 2002 compared to $44 million for the same period last year. Excluding the contribution from our four new U.S. mills, the operating profit was affected by lower selling prices for both paper and pulp and lower shipments of paper. These factors were partially offset by lower purchased fiber and energy costs as well as the favourable effect of a stronger US dollar. Operating profit in the PAPER MERCHANTS segment amounted to $7 million in the second quarter of 2002 compared to an operating profit of $5 million in the corresponding period of 2001. This improvement stems from a better sales mix and cost reductions emanating from initiatives within the restructured segment. Operating profit in the WOOD segment during the second quarter of 2002 totalled $33 million compared to $4 million for the same period last year. The reversal of a $28 million provision for estimated countervailing and antidumping duties, higher shipments, as well as productivity improvements, improved the performance of the segment. The operating profit was, however, impacted by lower selling prices and by $5 million cash duties paid on shipments exported to the U.S. after May 22, 2002. In the PACKAGING segment, Domtar's share of the operating profit of Norampac Inc. stood at $18 million compared to $21 million in the same quarter last year. This reduction is mainly attributable to an increase in recycled fiber costs and a decline in average transaction prices of containerboard. LIQUIDITY AND CAPITAL Cash flows from operations in the first six months of 2002 amounted to $258 million, a $120 million increase compared to the corresponding period of 2001. This increase was mainly due to an increase in EBITDA (earnings before financing expenses, income taxes and amortization) as well as a reduction in working capital requirements. Net capital expenditures for the first six months ended June 30, 2002 amounted to $69 million, a $43 million decrease compared to the same period of 2001. Consequently, free cash flow (cash flows from operating activities less net capital expenditures) for the first half of 2002 totalled $189 million compared to $26 million in the corresponding period of 2001. Free cash flow generated in the first six months of 2002 was applied primarily to debt reduction. As at June 30, 2002 the net debt-to-total- capitalization ratio was 52%, a decrease from 55% at December 31, 2001. OUTLOOK Domtar remains confident in the long-term fundamentals of the uncoated freesheet market. While the economic outlook for the balance of the year is difficult to predict, we believe that our acquisition of four paper mills in the United States, our profit improvement initiatives and our customer focus strategy position us to compete effectively in difficult conditions and also enable us to take full advantage of any improvements in the economy.

 

 

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