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Domtar Announces Net Earnings of $76 Million Earnings Target

Press release from the issuing company

MONTREAL, July 19 Domtar Inc. today announced net earnings of $76 million or $0.42 per common share for the second quarter of 2001, compared to $61 million or $0.33 per common share for the corresponding period of 2000. The operating profit reached $88 million compared to an operating profit of $120 million for the second quarter of 2000. Net sales reached $944 million versus $832 million for the same period last year. The second quarter 2001 results include earnings from non-recurring items primarily due to the cashing in of certain insurance policies as well as a reduction in enacted income tax rates, representing $0.05 and $0.18 per common share, respectively. HIGHLIGHTS OF SECOND QUARTER 2001 - Signing of a definitive agreement to acquire four pulp and paper mills from Georgia-Pacific Corporation; the transaction will be finalized in the third quarter. - New management organization in order to strengthen the customer- focused pull strategy. - Labor agreements concluded at Nairn Centre and Val-d'Or sawmills. "We are extremely pleased to have been able to reach an agreement with Georgia-Pacific to acquire four paper mills in the United States. Customers and investors have reacted very positively to this transaction, which provides us a significant presence in our primary market, the United States. With its customer-focused organization, rigorous management and this major acquisition, Domtar will be able to further improve its service to customers by providing a more comprehensive line of papers. Furthermore, anticipated synergies will improve our overall efficiency and reduce costs,'' said Raymond Royer, President and Chief Executive Officer. Commenting on the results of the second quarter, Mr. Royer added: "Challenging economic conditions gave way to an industry-wide reduction in demand for products and, as a result, lower prices for market pulp and most paper grades. Nonetheless, the loyalty of our customers enabled us to maintain shipments at reasonable levels and to continue posting satisfactory operational results.'' OPERATIONAL REVIEW The decrease in the operating profit compared to the second quarter of 2000 is mainly due to the drop in prices for market pulp, paper and packaging, and lower shipments in all segments except packaging. While energy costs have stabilized, these costs are still higher than those experienced during the same quarter last year. Operating profit in the PAPERS segment reached $49 million in the second quarter of 2001 compared to $95 million for the same period last year. When compared to the second quarter of 2000, the segment's overall performance was mainly affected by an average 19% decrease in transaction prices for market pulp and an average 3% decrease in transaction prices for uncoated freesheet. In addition, the segment was affected by weaker demand, which resulted in a decrease in shipments compared to same period last year. However, net sales increased to $689 million versus $573 million in the second quarter of 2000 mainly due to the inclusion of Ris Paper sales. The performance of the WOOD segment improved with an operating profit of $4 million versus an operating loss of $2 million for the same period in 2000. Net sales were $112 million compared to $128 million in the corresponding quarter last year. When compared to the second quarter of 2000, transaction prices increased by an average of 13%. This improvement in pricing was slightly offset by lower shipments related to the Nairn strike. Regarding its forest management practices, Domtar has pursued since the beginning of 2000 efforts to certify all of its practices according to either ISO 14001 or Forest Stewardship Council standards. By obtaining a fourth certification this quarter, 25% of Domtar's practices are now certified and this process will be completed by the end of the year. In the PACKAGING segment, Domtar's share of the operating profit of Norampac Inc. stood at $21 million compared to $27 million in the same quarter last year. This decrease is primarily due to an average 12% decline in transaction prices for linerboard and an increase in energy costs. Moreover, more market related downtime than last year was required in order to match supply with customer demand. NEW MANAGEMENT ORGANIZATION On June 12th, Domtar announced a reorganization in order to accelerate the implementation of its customer-focused pull strategy. This new organization will allow us to be more responsive to the needs of customers, while taking advantage of the best practices across the entire organization. OUTLOOK Uncertainty related to the state of the US economy and the Canada-US dispute on softwood lumber will continue to be of concern. Domtar will maintain its competitive position by improving its efficiency and by offering customers high quality products and services. Domtar Inc. is Canada's largest producer of specialty and fine papers, and is ranked seventh in North America. Domtar manages close to 36 million acres of forest in Canada and the United States. It employs forest management methods that are or will be certified ISO 14001 or will meet the standards of the Forest Stewardship Council by the end of 2001. A leading lumber producer in Eastern North America, Domtar also owns 50% of Norampac Inc., the largest Canadian producer of containerboard and corrugated containers. Domtar has annual net sales of close to $4 billion, mostly in the United States, and has 9,000 employees across North America.