Domtar Announced Strong Results in Pulp, Paper, Personal Care for Q2 2015

FORT MILL, S.C.—July 30, 2015—Domtar Corp. today reported net earnings of $38 million ($0.60 per share) for the second quarter of 2015 compared to net earnings of $36 million ($0.56 per share) for the first quarter of 2015 and net earnings of $40 million ($0.61 per share) for the second quarter of 2014. Sales for the second quarter of 2015 were $1.3 billion.

Excluding items listed below, the Company had earnings before items1 of $39 million ($0.61 per share) for the second quarter of 2015 compared to earnings before items1 of $48 million ($0.75 per share) for the first quarter of 2015 and earnings before items1 of $40 million ($0.61 per share) for the second quarter of 2014.

Second quarter 2015 items:

• Closure and restructuring costs of $1 million ($1 million after tax);
• Gain on disposal of property, plant and equipment of $14 million ($11 million after tax); and
• Impairment of property, plant & equipment of $18 million ($11 million after tax).

First quarter 2015 items:

• Closure and restructuring costs of $1 million ($1 million after tax);
• Gain on disposal of property, plant and equipment of $1 million ($1 million after tax); and
• Impairment of property, plant & equipment of $19 million ($12 million after tax).

Second quarter 2014 items:

• None

John Williams, president and CEO, said, "Our pulp and paper business performed largely in-line with expectations. Our operations ran well despite the seasonally high level of scheduled maintenance at our mills. The flooding in the U.S. South negatively impacted some of our wood costs and supply, but production curtailments were limited. Our paper shipments year-to-date are outperforming the broader North American uncoated freesheet market by 2.3 percent. As the trade case progresses, we will continue to monitor further opportunities resulting from lower cut-size imports while continuing to balance our capacity versus our customer demand."

Williams added, "Personal Care turned in a solid performance. Same currency sales increased 3 percent year over year while our cost savings program continued to deliver according to plan, driving a 300 basis-point margin improvement. Momentum in the business is growing, and we are operating and executing with more consistency. We remain focused on sharpening our strategies and capabilities that will deliver sustainable growth and value creation in this segment."

Quarterly Review
Operating income before items1 was $67 million in the second quarter of 2015 compared to an operating income before items1 of $90 million in the first quarter of 2015. Depreciation and amortization totaled $91 million in the second quarter of 2015.

The decrease in operating income before items1 in the second quarter of 2015 was the result of higher costs for planned maintenance, lower paper and pulp prices, lower paper and pulp shipments, higher freight costs and overall unfavorable exchange rates. These factors were partially offset by lower raw material and other costs and lower selling, general and administrative expenses. In addition, the first quarter was impacted by a bad debt expense.

When compared to the first quarter of 2015, manufactured paper shipments were down 2.6 percent and pulp shipments decreased 1.4 percent. The shipments-to-production ratio for paper was 97 percent in the second quarter of 2015, compared to 100 percent in the first quarter of 2015. Paper inventories increased by 23,000 tons while pulp inventories decreased by 15,000 metric tons in June when compared to March levels.

Liquidity and Capital
Cash flow provided from operating activities amounted to $122 million and capital expenditures were $66 million, resulting in free cash flow1 of $56 million for the second quarter of 2015. Domtar's net debt-to-total capitalization ratio1 stood at 29 percent at June 30, 2015 compared to 30 percent at March 31, 2015.

During the quarter, Domtar repurchased $17 million of common stock under its stock repurchase program.

Outlook
Looking into the second half of 2015, Domtar paper shipments are expected to trend with market demand and should benefit from lower import volumes in North America. We expect some short-term pricing volatility in pulp, as normal seasonal factors in certain markets take hold. Inflation on input costs is expected to be relatively flat; fiber costs will remain high in certain markets, but are not expected to increase further, while energy costs should remain favorable. Personal Care is expected to benefit from further cost savings and market growth, but the segment will be impacted by some seasonality in the third quarter.

About Domtar
Domtar Corp. (NYSE: UFS) (TSX: UFS) designs, manufactures, markets and distributes a wide variety of fiber-based products, including communication papers, specialty and packaging papers, and absorbent hygiene products. The foundation of its business is a network of world-class wood fiber-converting assets that produce papergrade, fluff and specialty pulp. The majority of its pulp production is consumed internally to manufacture paper and consumer products. Domtar is the largest integrated marketer and manufacturer of uncoated freesheet paper in North America with recognized brands such as Cougar, Lynx Opaque Ultra, Husky Opaque Offset, First Choice, EarthChoice and Xerox Paper and Specialty Media. Domtar is also a marketer and producer of a broad line of absorbent hygiene products marketed primarily under the Attends, IncoPack and Indasec brand names. In 2014, Domtar had sales of $5.6 billion from some 50 countries. The Company employs approximately 9,800 people.

Source: Domtar.