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Domtar Announces First Quarter 2006 Financial Results

Friday, April 28, 2006

Press release from the issuing company

MONTREAL, April 27 -- Domtar Inc. announced today a net loss of $24 million ($0.10 per common share) in the first quarter of 2006 compared to net earnings of $10 million ($0.04 per common share) in the first quarter of 2005 and a net loss of $348 million ($1.51 per common share) in the fourth quarter of 2005. "Our results in Q1 2006 for all our business segments improved compared to Q4 2005 as demand and prices for most of our key products firmed up during the quarter. Nonetheless, our operating profit was negatively affected by the continued strengthening of the Canadian dollar as well as a persistent high cost environment. Our restructuring plan announced in November 2005 is progressing well. The permanent shutdown of our Cornwall pulp and paper mill as well as our Ottawa paper mill became effective at the end of the first quarter of 2006, and with the ongoing efforts of our employees, we are implementing a series of measures aimed at improving cash flow, and supply chain initiatives that are expected to reduce operational costs and improve customer satisfaction", said Raymond Royer, Domtar's President and Chief Executive Officer. The $30 million decrease in operating loss excluding specified items in the Papers segment was mainly the result of higher shipments and average selling prices for paper, lower amortization expense, as well as investment tax credits related to research and development expenditures from prior years. These factors were partially offset by the negative impact of a stronger Canadian dollar. The $1 million increase in operating profit excluding specified items in the Paper Merchants segment was primarily due to higher operating margins, partially offset by higher bad debt expenses. The $2 million decrease in operating loss excluding specified items in the Wood segment was mainly attributable to lower duties on our softwood lumber exports to the U.S. and higher average selling prices. These factors were partially mitigated by the negative impact of a stronger Canadian dollar, lower shipments and higher freight costs. The countervailing and antidumping duties rate decreased gradually from 21.21% in December 2004 to 20.15% in February 2005 and in December 2005, the rate was lowered to 10.80%. The $7 million increase in operating profit excluding specified items in the Packaging segment (our 50% share of Norampac Inc.) was mainly attributable to higher average selling prices for both containerboard and corrugated containers, and lower costs for purchased recycled fiber and energy, partially offset by lower shipments of corrugated containers. Free cash flow amounted to negative $39 million in the first quarter of 2006 reflecting $41 million of cash requirements for working capital, including the benefit of $59 million of additional receivables sold through our off balance sheet securitization program. Domtar's net debt-to-total capitalization ratio(1) as at March 31, 2006 stood at 58.6% compared to 57.7% as at December 31, 2005. Domtar's total long- term debt increased by $48 million, largely due to additional net borrowings of $45 million. Although we expect challenging market conditions for the remainder of the year, we are encouraged by higher selling prices for most of our key products. Our focus will remain on the implementation of our announced restructuring plan with a view to improving our efficiency and returning to profitability.

 

 

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