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Domtar posts solid earnings in 2002

Thursday, January 30, 2003

Press release from the issuing company

MONTREAL, Jan. 29 - Domtar Inc. today announced net earnings of $141 million, or $0.62 per common share, and an operating profit of $384 million on net sales of $5.5 billion for the year ended December 31, 2002. HIGHLIGHTS - Net earnings of $141 million or $183 million ($0.80 per common share) when excluding closure costs (2) - Return on equity (ROE) of 6% or 7% when excluding closure costs, although average selling prices for our products were 7% below average prices for a cycle - Acquisition-related synergies reached an annualized run-rate of US$80 million against a target of US$65 million - Quality and Profitability Improvement Program launched in 2002 on track to achieve $100 million savings by the end of 2003 - Free cash flow for 2002 amounted to $454 million, primarily used to reduce debt - Net debt-to-total-capitalization ratio reduced from 55% to 49% - Fourth quarter 2002 net earnings reached $38 million or $50 million ($0.22 per common share) when excluding closure costs compared to $18 million for the same quarter in 2001 (2) "This has been a noteworthy year for Domtar. We successfully completed the integration of our four US mills acquired in August 2001, and met and exceeded all the commitments we announced at the time of the acquisition. The rigorous implementation of our quality and profitability improvement programs allowed us to post a return on equity equal to last year (excluding closure costs), although our average selling prices were 4% below those of 2001. Our financial discipline has also permitted us to generate significant free cash flow and to reduce our ratio of debt-to-total-capitalization below 50% by the end of 2002," said Raymond Royer, President and CEO of Domtar. "Although our average selling prices were amongst the lowest in the last ten years, our sales reached $5.5 billion and our operating margin went from 7.1% to 8.1% before closure costs. These results once again demonstrate the will and determination of our employees to make Domtar an investment of choice among the companies included in the basic materials index," added Mr. Royer. OPERATIONAL REVIEW FOR 2002 Operating profit in the Papers segment reached $301 million in 2002, or $346 million when excluding the provision for closure costs of our mill in St. Catharines, compared to $246 million in 2001. This significant increase in earnings despite lower selling prices for pulp and paper is mainly due to our four U.S. mills' contribution for twelve months in 2002 compared to five months in 2001. It is also the result of the successful implementation of our quality and profitability improvement programs, as well as other management initiatives such as recovery of research and development tax credits. This segment also benefited from lower purchased fiber and energy costs as well as the favorable effect of a stronger US dollar. Operating profit in the Paper Merchants segment amounted to $25 million in 2002 compared to $17 million in 2001. This improvement stems from a better sales mix and increased efficiency within this entirely restructured segment. Operating loss in the Wood segment amounted to $16 million in 2002 compared to an operating loss of $46 million in 2001. As shown in the table below, operating profit in 2002 would have been $13 million compared to an operating loss of $26 million in 2001 if closure costs and the net impact of duties related to softwood exports to the U.S. are excluded. The improvement of performance in the Wood segment is mainly due to cost reductions, a better sales mix and the favorable effect of a stronger US dollar. In the Packaging segment, Domtar's 2002 share of the operating profit of Norampac Inc. stood at $74 million compared to $82 million in 2001. Higher volumes for corrugated containers resulting from recent acquisitions were unable to offset lower selling prices, and mainly explain the reduction in profitability.

 

 

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