Domtar Begins to Feel the Benefits of Improved Market Conditions in Q2
Press release from the issuing company
MONTREAL, August 3 -- Domtar Inc. announced today sales of $1.3 billion and, including specified items(1), an operating profit of $28 million, and a net loss of $1 million in the second quarter of 2004. Excluding specified items(1), Domtar posted an operating profit of $33 million and net earnings of $3 million.
"We saw a noticeable improvement in market conditions and demand for many of our products strengthened in the second quarter. This allowed us to announce and successfully implement several price increases, from which we expect to reap the full benefits during the third quarter of 2004. This is a welcome contrast to the ten-year low pricing environment experienced at the end of 2003 and the beginning of 2004," stated Raymond Royer, President and Chief Executive Officer of Domtar. "I wish to thank our employees for responding promptly to higher customer demand by increasing production rapidly, while continuing to focus on the implementation of our quality and profitability improvement programs," added Mr. Royer.
Operational review (second quarter 2004 compared to second quarter 2003)
Operating profit in the Papers segment amounted to $5 million in the second quarter of 2004 compared to an operating profit of $58 million in the same period of 2003. When excluding specified items, operating profit amounted to $6 million in the second quarter of 2004 compared to an operating profit of $57 million in the same period of 2003. This decrease was attributable to lower selling prices for paper, the negative impact of a weaker US dollar, and higher freight, purchased fiber and energy costs. These factors were partly offset by higher shipments for pulp and paper as well as by higher selling prices for pulp. Domtar's paper shipments-to-capacity ratio reached 97% in the second quarter of 2004 compared to 92% for the same period in 2003.
Operating profit in the Paper Merchants segment totaled $5 million in the second quarter of 2004, stable when compared to the same period of 2003. Although shipments were up during the quarter, their benefits were offset by lower selling prices for paper when compared to the second quarter of 2003.
Operating profit in the Wood segment amounted to $6 million in the second quarter of 2004, compared to an operating loss of $20 million in the same period of 2003. These improved results stemmed primarily from significantly higher selling prices for lumber. However, stronger prices were partially offset by countervailing and antidumping duties, as well as the effect of a weaker US dollar. Q2 2004 results include a $21 million expense due to the 27% countervailing and antidumping duties imposed by the United States compared to $11 million in the corresponding quarter last year. Since May 22, 2002, Domtar has made and expensed cash deposits of $109 million for export duties.
In the Packaging segment, our 50% share of Norampac Inc.'s operating profit stood at $8 million in the second quarter of 2004 compared to $13 million for the same quarter of 2003. When excluding specified items, operating profit stood at $12 million in the second quarter of 2004 compared to $13 million for the same quarter of 2003.
Liquidity and capital
Cash flows provided by operations in the second quarter of 2004 amounted to $76 million compared to $145 million in the same period of 2003. Net capital expenditures amounted to $50 million in the second quarter of 2004, compared to $43 million in the same period of 2003. Domtar's net debt-to-total capitalization ratio as at June 30, 2004 was 51%, compared to 48% as at December 31, 2003.
During the second quarter of 2004, Domtar finally felt the benefits of improved economic conditions in North America. This translated into much stronger demand and better pricing for most of its products. During the third quarter of 2004, Domtar should benefit from the full implementation of the paper price increases announced in the second quarter. On the other hand, the Company does not believe that the high pricing experienced for lumber during the second quarter of 2004 is sustainable. In addition to potentially benefiting from the overall improvement in market conditions, Domtar will continue to focus on implementing our quality and profitability improvement programs, notably to ensure that all of its Canadian pulp and paper operations are profitable when the Canadian dollar is valued at 75 cents to the US dollar.
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