MONTREAL, April 28 -- Domtar Inc. announced today net earnings of $10 million ($0.04 per common share) in the first quarter of 2005 compared to a net loss of $44 million ($0.19 per common share) in the first quarter of 2004 and a net loss of $26 million ($0.11 per common share) in the fourth quarter of 2004. "Domtar returned to profitability in the first quarter of 2005 with net earnings of $10 million. The business environment was comparable to that which prevailed in the fourth quarter of 2004. Costs for freight, wood, chemicals and energy as well as a weak US dollar, continued to negatively impact our earnings," stated Raymond Royer, President and Chief Executive Officer of Domtar. "However, we benefited from higher paper and lumber shipments, improved pulp and lumber average selling prices and, more importantly, from our resolve to pursue announced specific cost reduction initiatives. In fact, the ongoing efforts and quality of execution demonstrated by our employees have enabled us to reach approximately 45% of our goal to achieve a cost reduction run rate of $100 million by the end of 2005." "The Company also has reached an important step toward providing tailor- made paper solutions to its customers. Thus, on April 11 in New York, it introduced Domtar EarthChoice, a line of socially and environmentally responsible papers, endorsed by Rainforest Alliance, and destined to companies which are environmentally and brand conscious," concluded Mr. Royer. The $22 million improvement in operating profit excluding specified items in the Papers segment was mainly attributable to higher shipments for paper, higher average selling prices for pulp and lower overall costs due to, among others, the realization of savings stemming from restructuring activities. These factors were partially offset by lower shipments for pulp, lower average selling prices for paper and higher purchased wood and chemical costs. Operating profit excluding specified items in the Paper Merchants segment remained stable. Although shipments were up during the quarter, their benefits were offset by lower average selling prices. The $18 million improvement in operating profit excluding specified items in the Wood segment was mainly attributable to higher average selling prices and shipments for lumber, as well as productivity gains. Partially mitigating the rise in operating profit were higher freight costs. As of January 1, 2005, the countervailing and antidumping duties rate has decreased from 27.22% to 20.95%. Since May 22, 2002, Domtar has made and expensed cash deposits of $159 million for export duties. The $4 million decline in operating profit excluding specified items in the Packaging segment (our 50% share of Norampac Inc.) was attributable to lower average selling prices and higher energy costs. Liquidity and capital - first quarter 2005 compared to fourth quarter 2004 Cash flows used for operating activities in the first quarter of 2005 amounted to $34 million compared to cash flows provided from operating activities of $36 million in the fourth quarter of 2004. The first quarter of the year is typically impacted by seasonally high requirements for working capital. Additions to property, plant and equipment amounted to $33 million in the first quarter of 2005 compared to $64 million in the fourth quarter of 2004. Free cash flow in the first quarter of 2005 was negative $62 million compared to positive $2 million in the fourth quarter of 2004. Domtar's total long-term debt increased by $93 million, largely due to additional net borrowings of $82 million and the negative impact of $11 million attributable to a stronger US dollar (based on month-end foreign exchange rates) on its US dollar denominated debt. Domtar's net debt-to-total capitalization ratio as at March 31, 2005 stood at 50.6% compared to 49.5% as at December 31, 2004. Domtar's results for the first quarter of 2005 include a tax recovery adjustment of $6 million following the reassessment of a prior year's income taxes by tax authorities. Outlook Although we experienced stronger overall shipments and higher average selling prices for most of our products in the first quarter of 2005 compared to the last quarter of 2004, market conditions are expected to remain challenging during the balance of the year. Costs for wood, chemicals and energy continue to put pressure on our margins. Nonetheless, we maintain our objective of delivering annualized targeted savings of $100 million by the end of the year.