Domtar Reports Q3: Most difficult market conditions in a decade
Press release from the issuing company
MONTREAL, Oct. 30 - Domtar Inc. today announced net earnings of $3 million, or $0.01 per common share, and an operating profit of $36 million on net sales of $1.2 billion during the third quarter of 2003.
"During the third quarter of 2003, Domtar faced the most difficult market conditions in the last ten years. Viewed in this context, today's results are a tribute to sustained efforts undertaken by our employees to improve efficiency and reduce costs," said Raymond Royer, President and Chief Executive Officer of Domtar. "We will pursue our efforts to mitigate the effects of low prices comparable to those of 1994 by focusing on actions that will provide our customers with a competitive advantage such as deploying an integrated planning system, improving our product offering and delivering on time."
"Lastly, it is important to note that our accounting practices since 2002 exclude from our earnings the impact of currency fluctuations on the U.S. dollar denominated long-term debt contracted by Domtar. As such, our reported net earnings more properly reflect our operational performance. In fact, had we included such gains since the beginning of the year, Domtar's net earnings would have increased by $198 million or $0.87 per common share," added Mr. Royer.
Operating profit in the Papers segment reached $27 million in the third quarter of 2003 ($22 million when excluding a $5 million provision reversal for closure costs of the St. Catharines, Ontario mill) compared to $121 million for the same period in 2002. This decrease was due to the negative impact of a stronger Canadian dollar on both domestic and export sales, lower shipments for paper and pulp, and overall lower selling prices. However, the benefits stemming from our profitability improvement programs partially mitigated the effects of higher purchased fiber and energy costs.
Domtar's shipment to capacity ratio during third quarter of 2003 stood at 92%. In effect, this segment's results were impacted by our decision to curtail production to match customer demand and by production disruptions mainly caused by the mid-August power outage.
Operating profit in the Paper Merchants segment totaled $4 million in the third quarter of 2003, compared to $6 million in the corresponding period of 2002. This decline resulted from lower gross profit on reduced sales attributable to the negative impact of a stronger Canadian dollar and lower prices. Cost savings offset a portion of the lower gross profit.
Operating loss in the Wood segment amounted to $11 million in the third quarter of 2003 (or an operating profit of $2 million when excluding the impact of lumber duties) compared to an operating loss of $10 million in the third quarter of 2002 (or an operating profit of $7 million when excluding the impact of lumber duties). These results stemmed from the negative impact of a stronger Canadian dollar on both domestic and export sales and lower shipments, partially offset by a significant increase in selling prices and sustained efforts to improve efficiency and reduce costs during the quarter. Since May 22, 2002, Domtar has made and expensed cash deposits of $63 million for countervailing and antidumping duties.
In the Packaging segment, Domtar's third quarter 50% share of the operating profit for Norampac Inc. stood at $16 million compared to $21 million in the same quarter of 2002. This reduction was mainly attributable to the negative impact of a stronger Canadian dollar on both domestic and export sales, partially offset by a decrease in purchased fiber costs.
Liquidity and capital
Cash flows provided from operations in the first nine months of 2003 amounted to $216 million compared to $427 million for the same period in 2002. This decrease was mainly due to lower net earnings and, to a lesser degree, higher requirements for working capital in the first nine months of 2003 compared to the same period of 2002. Net capital expenditures for the nine months ended September 30, 2003, amounted to $145 million compared to $128 million for the same period in 2002. Pursuant to our commitment, we expect our capital expenditures to be well below 75% of amortization in 2003.
Domtar's net debt-to-total capitalization ratio as at September 30, 2003, was 47%, a decrease from 49% as at December 31, 2002.
Domtar's current business environment is impacted by factors beyond its control, such as soft economic conditions, currency fluctuations and high energy costs. Domtar will maintain its efforts to reduce costs and improve efficiency. Domtar will also continue to monitor inventory closely and adjust production in order to match supply with customer demand, even if this leads to market-related downtime and affects our profitability improvement programs. That being said, the U.S. economy appears to be showing signs of recovery, as evidenced by the slight improvement in demand for Domtar's papers at the beginning of the fourth quarter of 2003. Domtar will pursue its objectives to deliver superior returns to shareholders even in difficult market conditions and to position itself to take full advantage of any improvement in the economy.
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