Domtar Announces Q1 Loss; Provides Details on Restructuring Canadian Paper Manufacturing Ops
Press release from the issuing company
MONTREAL, April 29 - Domtar Inc. announced today sales of $1.2 billion and, when taking into account unusual items(1), an operating loss of $33 million and a net loss of $44 million, or $0.19 per common share in the first quarter of 2004. Excluding these unusual items, Domtar posted an operating loss of $25 million and a net loss of $38 million, or $0.16 per common share.
"We continued to experience very challenging market conditions during the first quarter of 2004. Indeed, we saw a further deterioration in average prices for most paper grades when compared to the last quarter of 2003. Domtar was able, however, to compensate with strong shipments, particularly in March, and sustained efforts to reduce costs," stated Raymond Royer, President and Chief Executive Officer of Domtar. "We also concluded, during the first quarter, a plan to restructure all of our Canadian paper operations with the goal of ensuring that they are profitable when the Canadian dollar is worth 75 cents US and prices for papers are at cycle lows. We anticipate that this initiative, in conjunction with the Vancouver mill reorganization, will generate annual savings of approximately $50 million. Although a good number of positions eliminated as a result of this restructuring will be achieved through attrition, employees losing their jobs will be treated according to Domtar values and given financial and technical support to find new employment," added Mr. Royer.
Operating loss in the Papers segment amounted to $38 million in the first quarter of 2004, or an operating loss of $30 million when excluding unusual items, compared to an operating profit of $81 million in the same period of 2003. This decrease was attributable to the negative impact of a weaker US dollar, lower selling prices for paper and higher purchased fiber costs. These factors were partly offset by higher shipments for pulp and paper, despite a strike at the Vancouver paper mill and the closure of one paper machine at that mill, as well as by higher selling prices for pulp, lower amortization expense and lower energy costs. Domtar's paper shipments-to-capacity ratio reached 98% in the first quarter of 2004 compared to 91% for the same period in 2003.
Operating profit in the Paper Merchants segment totaled $6 million in the first quarter of 2004, compared to $7 million in the same period of 2003. This decline mainly resulted from the negative impact of a weaker US dollar, partially offset by slightly higher shipments.
Operating loss in the Wood segment amounted to $13 million in the first quarter of 2004, compared to an operating loss of $21 million in the same period of 2003. These improved results stemmed from significantly higher selling prices for lumber. However, the higher prices were partially offset by the weaker US dollar, a labour disruption at a transportation supplier that negatively impacted shipments, as well as higher countervailing and antidumping duties. Q1 2004 results include a $12 million expense for countervailing and antidumping duties compared to $8 million in the corresponding quarter last year. Since May 22, 2002, Domtar has made and expensed cash deposits of $88 million for such duties.
In the Packaging segment, our 50% share of the operating profit for Norampac Inc. stood at $11 million in the first quarter of 2004, stable when compared to the first quarter of 2003. This was attributable to the negative impact of a weaker US dollar, which resulted in lower average net selling prices for both containerboard and corrugated products, and lower shipments for containerboard, offset by a $6 million unrealized gain on open positions on commodity swap contracts in the first quarter of 2004 and other cost savings.
Liquidity and capital
Cash flows used for operations in the first quarter of 2004 amounted to $69 million compared to $24 million in the same period of 2003. The first quarter of the year is typically impacted by seasonally high requirements for working capital. Net capital expenditures amounted to $41 million in the first quarter of 2004, compared to $41 million in the same period of 2003. Domtar's net debt-to-total capitalization ratio as at March 31, 2004 was 51%, compared to 48% as at December 31, 2003.
The U.S. economy is showing encouraging signs of recovery and is having a positive impact on many of our markets. Although Domtar continued to face factors beyond its control during the first quarter of 2004, such as a weak US dollar affecting its Canadian operations and cycle low pricing, the Company experienced an improvement in demand for its products at the end of the quarter. Indeed, order books are currently strong and, as such, price increases for uncoated freesheet, softwood and hardwood pulp, as well as linerboard have been announced. Domtar will, nonetheless, continue to take action with the goal of improving its profitability by $200 million in order to reach its objective of providing shareholders with a return on equity of 15% over a business cycle.
In addition to the anticipated $50 million savings associated with the restructuring of activities at the Canadian paper manufacturing facilities, the remaining expected savings of $150 million should be achieved in 2004 and 2005, and they are expected to come from Domtar's quality and profitability improvement programs, including the benefits resulting from initiatives such as the roll out of an Enterprise Resource Planning (ERP) system, the implementation of a new paper shipment logistics and transportation management system and Kaizen continuous improvement workshops. Domtar expects its customer focus and quality and profitability improvement programs to allow the Company to take full advantage of improvements in the economy and to deliver superior returns to its shareholders.
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