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Domtar Net Loss of $11 Million in 1Q, Acquisition Synergies Take Shape

Thursday, May 02, 2002

Press release from the issuing company

MONTREAL, May 1st - As a result of a $45 million provision ($30 million net of income taxes) related to the closure of its St. Catharines mill, Domtar Inc. announced today a net loss of $11 million or $0.05 per common share for the first quarter of 2002. Excluding this provision, net earnings would have been $19 million or $0.08 per common share, compared to net earnings of $21 million or $0.11 per common share for the corresponding quarter of 2001. The operating profit was $32 million for the first quarter of 2002 or $77 million when excluding the provision, versus $78 million for the first quarter of 2001. "Despite this mill closure, our performance during the first quarter, which was affected by a 9% drop in selling prices, is satisfactory given the success of our synergies program. We remain, therefore, committed to achieving US$65 million worth of synergies by the end of 2002, as well as to meeting our stated objective of increasing profitability by $100 million through our Quality and Profitability Program by the end of 2003," said Mr. Raymond Royer, President and Chief Executive Officer. OPERATIONAL REVIEW Operating profit in the PAPERS segment reached $18 million in the first quarter of 2002, or $63 million when excluding closure costs, compared to $74 million for the same period in 2001. This decrease was primarily due to lower selling prices for both paper and pulp, partially offset by the inclusion of operating profit of the recently acquired mills in the United States. Operating profit in the PAPER MERCHANTS segment reached $7 million in the first quarter of 2002 compared to an operating profit of $5 million in the corresponding period of 2001. This increase was primarily due to better sales mix and synergies from the newly organized North American Paper Merchants Group. As a result of a $9 million provision to cover antidumping duties on softwood lumber exports to the United States, the WOOD segment reported an operating loss of $10 million in the first quarter of 2002 compared to a loss of $20 million for the same period in 2001. This improvement stemmed mainly from higher selling prices and improved efficiency. In the PACKAGING segment, Domtar's share of Norampac's operating profit was $17 million compared to $19 million for the same quarter last year. This was mainly due to lower selling prices and market related downtime, which were partially offset by the profitability of recently acquired mills. LIQUIDITY AND CAPITAL Cash flows provided from operations for the first quarter of 2002 amounted to $1 million, a $6 million increase compared to the corresponding period in 2001. Usually, the first quarter of a year is impacted by seasonally high requirements for working capital, especially in our wood business. As at March 31, 2002, the net debt-to-total-capitalization ratio was 55%, unchanged from December 31, 2001. OUTLOOK We believe that the current weak economic environment will continue to be challenging for all our businesses over the coming quarters. Economic indicators, however, point toward better conditions later in the year. We remain confident in the long-term fundamentals of the uncoated freesheet market, as witnessed by the announced price increase of US$40/ton for uncoated freesheet, which took effect in April 2002. We will continue to strengthen our customer relationships, and we will also continue to closely monitor inventories in order to maintain optimal levels that meet the needs of our customers. We believe that our acquisition of four paper mills in the United States and other profit improvement initiatives position us to compete effectively and will enable us to benefit from improvements in the economy.




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