Domtar Corporation Reports Preliminary First Quarter 2017 Financial Results

Seasonally high level of scheduled maintenance; Good momentum in pulp markets
(All financial information is in U.S. dollars, and all earnings per share results are diluted, unless otherwise noted).

  • First quarter 2017 net earnings of $0.32 per share
  • Price increases announced for several pulp grades
  • $91 million of cash flow from operating activities

FORT MILL, S.C.–(BUSINESS WIRE)–Apr. 27, 2017– Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported net earnings of $20 million ($0.32 per share) for the first quarter of 2017 compared to net earnings of $47 million ($0.75 per share) for the fourth quarter of 2016 and net earnings of $4 million ($0.06 per share) for the first quarter of 2016. Sales for the first quarter of 2017 were $1.3 billion.

Excluding items listed below, the Company had earnings before items1 of $20 million ($0.32 per share) for the first quarter of 2017 compared to earnings before items1 of $47 million ($0.75 per share) for the fourth quarter of 2016 and earnings before items1 of $22 million ($0.35 per share) for the first quarter of 2016.

First quarter 2017 items:

  • None.

Fourth quarter 2016 items:

  • Closure and restructuring impact of $(1) million ($(1) million after tax); and
  • Negative impact of purchase accounting of $1 million ($1 million after tax).

First quarter 2016 items:

  • Closure and restructuring costs of $2 million ($2 million after tax); and
  • Impairment of property, plant & equipment of $21 million ($16 million after tax).

QUARTERLY REVIEW

“The Ashdown mill continued to focus its efforts on the production and quality of fluff pulp; we shipped primarily softwood bales in the quarter, but we are making good progress with the qualification of our grades and we’re receiving positive feedback from our customers,” said John D. Williams, President and Chief Executive Officer. “Our pulp business is growing and becoming more meaningful. We’ve shipped nearly 25% more tons when compared to the same quarter last year, and current initiatives will support continued profitable growth. Our nearly 2 million tons of high-quality softwood, fluff and specialty market pulp capacity provides us with a scale business that will add momentum to our growth strategy for years to come.”

Mr. Williams added, “In Personal Care, strong sales growth and operational improvements in the first quarter continue to offset currency, price and cost headwinds. We are focusing our efforts on rolling out our growth plans, capturing the benefits of our cost savings program and building value for our customers to effectively compete in this competitive environment. Our sales pipeline remains active with numerous opportunities to grow in both North America and Europe.”

Operating income was $42 million in the first quarter of 2017 compared to an operating income of $74 million in the fourth quarter of 2016. Depreciation and amortization totaled $80 million in the first quarter of 2017.

Operating income before items1 was $42 million in the first quarter of 2017 compared to an operating income before items1 of $74 million in the fourth quarter of 2016.

                 
(In millions of dollars)   1Q 2017     4Q 2016  
                 
Sales   $ 1,304     $ 1,274  
Operating income (loss)                
Pulp and Paper segment     34       74  
Personal Care segment     16       13  
Corporate     (8 )     (13 )
Total operating income     42       74  
Operating income before items1     42       74  
Depreciation and amortization     80       85  

The decrease in operating income in the first quarter of 2017 was the result of higher maintenance costs, lower productivity, lower average selling prices and higher raw material and other costs. These factors were partially offset by higher volume, lower selling, general and administrative expenses and favorable exchange rates.

When compared to the fourth quarter of 2016, manufactured paper shipments were up 1% and pulp shipments increased 9%. The shipments-to-production ratio for paper was 105% in the first quarter of 2017, compared to 104% in the fourth quarter of 2016. Paper inventories decreased by 36,000 tons and pulp inventories decreased by 61,000 metric tons when compared to the fourth quarter of 2016.

LIQUIDITY AND CAPITAL

Cash flow from operating activities amounted to $91 million and capital expenditures were $34 million, resulting in free cash flow1 of $57 million for the first quarter of 2017. Domtar’s net debt-to-total capitalization ratio1 stood at 30% at March 31, 2017 and at December 31, 2016.

OUTLOOK

For the remainder of the year, we anticipate paper shipments to be in-line with market demand. We expect to benefit from recently announced pulp price increases, while mix should continue to improve as we convert to more fluff pulp sales at our Ashdown mill. Costs, including freight, labor and chemicals are expected to marginally increase. In Personal Care, market growth, investments in advertising and promotion in addition to new customer wins should drive higher sales, while raw material costs are expected to marginally increase.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 10:00 a.m. (ET) to discuss its first quarter 2017 financial results. Financial analysts are invited to participate in the call by dialing 1 (800) 499-4035 (toll free – North America) or 1 (416) 204-9269 (International) at least 10 minutes before start time, while media and other interested individuals are invited to listen to the live webcast on the Domtar Corporation website at www.domtar.com.

The Company will release its second quarter 2017 earnings results on July 27, 2017 before markets open, followed by a conference call at 10:00 a.m. (ET) to discuss results. The date is tentative and will be confirmed approximately three weeks prior to the official earnings release date.

About Domtar
Domtar is a leading provider of a wide variety of fiber-based products including communication, specialty and packaging papers, market pulp and absorbent hygiene products. With approximately 10,000 employees serving more than 50 countries around the world, Domtar is driven by a commitment to turn sustainable wood fiber into useful products that people rely on every day. Domtar’s annual sales are approximately $5.1 billion, and its common stock is traded on the New York and Toronto Stock Exchanges. Domtar’s principal executive office is in Fort Mill, South Carolina. To learn more, visit www.domtar.com.

Forward-Looking Statements
Statements in this release about our plans, expectations and future performance, including the statements by Mr. Williams and those contained under “Outlook,” are “forward-looking statements.” Actual results may differ materially from those suggested by these statements for a number of reasons, including changes in customer demand and pricing, changes in manufacturing costs, future acquisitions and divestitures, including facility closings, and the other reasons identified under “Risk Factors” in our Form 10-K for 2016 as filed with the SEC and as updated by subsequently filed Form 10-Qs. Except to the extent required by law, we expressly disclaim any obligation to update or revise these forward-looking statements to reflect new events or circumstances or otherwise.

Domtar Corporation
Highlights
(In millions of dollars, unless otherwise noted)

    Three months ended     Three months ended  
    March 31,     March 31,  
    2017     2016  
    (Unaudited)  
    $     $  
                 
Selected Segment Information                
Sales                
Pulp and Paper     1,073       1,085  
Personal Care     249       216  
Total for reportable segments     1,322       1,301  
Intersegment sales     (18 )     (14 )
Consolidated sales     1,304       1,287  
Depreciation and amortization

of property, plant and equipment

               
Pulp and Paper     64       73  
Personal Care     16       16  
Total for reportable segments     80       89  
Impairment of property, plant

and equipment – Pulp and Paper

          21  
Consolidated depreciation and amortization and

impairment of property, plant and equipment

    80       110  
                 
Operating income (loss)                
Pulp and Paper     34       19  
Personal Care     16       14  
Corporate     (8 )     (15 )
Consolidated operating income     42       18  
Interest expense, net     17       17  
Earnings before income taxes     25       1  
Income tax expense (benefit)     5       (3 )
Net earnings     20       4  
Per common share (in dollars)                
Net earnings                
Basic     0.32       0.06  
Diluted     0.32       0.06  
Weighted average number of common

shares outstanding (millions)

               
Basic     62.6       62.7  
Diluted     62.8       62.8  
Cash flows from operating activities     91       97  
Additions to property, plant and equipment     34       100  

Domtar Corporation
Consolidated Statements of Earnings
(In millions of dollars, unless otherwise noted)

    Three months ended     Three months ended  
    March 31,     March 31,  
    2017     2016  
    (Unaudited)  
    $     $  
                 
Sales     1,304       1,287  
Operating expenses                
Cost of sales, excluding depreciation and amortization     1,075       1,050  
Depreciation and amortization     80       89  
Selling, general and administrative     108       103  
Impairment of property, plant and equipment           21  
Closure and restructuring costs           2  
Other operating (income) loss, net     (1 )     4  
      1,262       1,269  
Operating income     42       18  
Interest expense, net     17       17  
Earnings before income taxes     25       1  
Income tax expense (benefit)     5       (3 )
Net earnings     20       4  
Per common share (in dollars)                
Net earnings                
Basic     0.32       0.06  
Diluted     0.32       0.06  
Weighted average number of common

shares outstanding (millions)

               
Basic     62.6       62.7  
Diluted     62.8       62.8  

Domtar Corporation
Consolidated Balance Sheets at
(In millions of dollars)

       
    March 31,     December 31,  
    2017     2016  
    (Unaudited)  
    $     $  
Assets                
Current assets                
Cash and cash equivalents     111       125  
Receivables, less allowances of $7 and $7     662       613  
Inventories     722       759  
Prepaid expenses     34       40  
Income and other taxes receivable     15       31  
Total current assets     1,544       1,568  
Property, plant and equipment, net     2,789       2,825  
Goodwill     553       550  
Intangible assets, net     607       608  
Other assets     132       129  
Total assets     5,625       5,680  
Liabilities and shareholders’ equity                
Current liabilities                
Bank indebtedness     2       12  
Trade and other payables     633       656  
Income and other taxes payable     25       22  
Long-term debt due within one year     64       63  
Total current liabilities     724       753  
Long-term debt     1,188       1,218  
Deferred income taxes and other     672       675  
Other liabilities and deferred credits     356       358  
Shareholders’ equity                
Common stock     1       1  
Additional paid-in capital     1,964       1,963  
Retained earnings     1,205       1,211  
Accumulated other comprehensive loss     (485 )     (499 )
Total shareholders’ equity     2,685       2,676  
Total liabilities and shareholders’ equity     5,625       5,680  

Domtar Corporation
Consolidated Statements of Cash Flows
(In millions of dollars)

    For the three months ended  
    March 31, 2017     March 31, 2016  
    (Unaudited)  
    $     $  
Operating activities                
Net earnings     20       4  
Adjustments to reconcile net earnings to cash flows from operating activities                
Depreciation and amortization     80       89  
Deferred income taxes and tax uncertainties     (4 )     (3 )
Impairment of property, plant and equipment           21  
Stock-based compensation expense     1       1  
Changes in assets and liabilities                
Receivables     (47 )     (6 )
Inventories     39       (1 )
Prepaid expenses     1       (1 )
Trade and other payables     (19 )     2  
Income and other taxes     21       (9 )
Difference between employer pension and other post-retirement

contributions and pension and other post-retirement expense

          (1 )
Other assets and other liabilities     (1 )     1  
Cash flows from operating activities     91       97  
Investing activities                
Additions to property, plant and equipment     (34 )     (100 )
Cash flows used for investing activities     (34 )     (100 )
Financing activities                
Dividend payments     (26 )     (25 )
Stock repurchase           (10 )
Net change in bank indebtedness     (11 )     7  

Change in revolving credit facility

    (20 )      
Proceeds from receivables securitization facility           20  
Repayments of receivables securitization facility     (15 )     (20 )
Repayments of long-term debt           (1 )
Cash flows used for financing activities     (72 )     (29 )
Net decrease in cash and cash equivalents     (15 )     (32 )
Impact of foreign exchange on cash     1       3  
Cash and cash equivalents at beginning of period     125       126  
Cash and cash equivalents at end of period     111       97  
Supplemental cash flow information                
Net cash payments (refunds) for:                
Interest     19       20  
Income taxes     (8 )     6  

Domtar Corporation
Quarterly Reconciliation of Non-GAAP Financial Measures
(In millions of dollars, unless otherwise noted)

The following table sets forth certain non-U.S. generally accepted accounting principles (“GAAP”) financial metrics identified in bold as “Earnings before items”, “Earnings before items per diluted share”, “EBITDA”, “EBITDA margin”, “EBITDA before items”, “EBITDA margin before items”, “Free cash flow”, “Net debt” and “Net debt-to-total capitalization”. Management believes that the financial metrics are useful to understand our operating performance and benchmark with peers within the industry. The Company calculates “Earnings before items” and “EBITDA before items” by excluding the after-tax (pre-tax) effect of specified items. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.

            2017     2016  
            Q1     Q1     Q2     Q3     Q4     Year  
Reconciliation of “Earnings before items” to Net earnings                                                    
    Net earnings   ($)     20       4       18       59       47       128  
  (+) Impairment of property, plant and equipment   ($)           16       2       4             22  
  (+) Closure and restructuring costs   ($)           2       16       8       (1 )     25  
  (+) Litigation settlement   ($)                 2                   2  
  (+) Impact of purchase accounting   ($)                             1       1  
  (=) Earnings before items   ($)     20       22       38       71       47       178  
  (/) Weighted avg. number of common shares outstanding (diluted)   (millions)     62.8       62.8       62.7       62.7       62.7       62.7  
  (=) Earnings before items per diluted share   ($)     0.32       0.35       0.61       1.13       0.75       2.84  
                                                         
Reconciliation of “EBITDA” and “EBITDA before items” to Net earnings                                                    
    Net earnings   ($)     20       4       18       59       47       128  
  (+) Income tax expense (benefit)   ($)     5       (3 )     6       16       10       29  
  (+) Interest expense, net   ($)     17       17       15       17       17       66  
  (=) Operating income   ($)     42       18       39       92       74       223  
  (+) Depreciation and amortization   ($)     80       89       87       87       85       348  
  (+) Impairment of property, plant and equipment   ($)           21       3       5             29  
  (=) EBITDA   ($)     122       128       129       184       159       600  
  (/) Sales   ($)     1,304       1,287       1,267       1,270       1,274       5,098  
  (=) EBITDA margin   (%)     9 %     10 %     10 %     14 %     12 %     12 %
    EBITDA   ($)     122       128       129       184       159       600  
  (+) Closure and restructuring costs   ($)           2       21       10       (1 )     32  
  (+) Litigation settlement   ($)                 2                   2  
  (+) Impact of purchase accounting   ($)                             1       1  
  (=) EBITDA before items   ($)     122       130       152       194       159       635  
  (/) Sales   ($)     1,304       1,287       1,267       1,270       1,274       5,098  
  (=) EBITDA margin before items   (%)     9 %     10 %     12 %     15 %     12 %     12 %
                                                         
Reconciliation of “Free cash flow” to Cash flows from operating activities                                                    
    Cash flows from operating activities   ($)     91       97       118       95       155       465  
  (-) Additions to property, plant and equipment   ($)     (34 )     (100 )     (119 )     (83 )     (45 )     (347 )
  (=) Free cash flow   ($)     57       (3 )     (1 )     12       110       118  
                                                         
“Net debt-to-total capitalization” computation                                                    
    Bank indebtedness   ($)     2       6       1             12          
  (+) Long-term debt due within one year   ($)     64       41       64       63       63          
  (+) Long-term debt   ($)     1,188       1,211       1,237       1,309       1,218          
  (=) Debt   ($)     1,254       1,258       1,302       1,372       1,293          
  (-) Cash and cash equivalents   ($)     (111 )     (97 )     (111 )     (168 )     (125 )        
  (=) Net debt   ($)     1,143       1,161       1,191       1,204       1,168          
  (+) Shareholders’ equity   ($)     2,685       2,736       2,716       2,754       2,676          
  (=) Total capitalization   ($)     3,828       3,897       3,907       3,958       3,844          
    Net debt   ($)     1,143       1,161       1,191       1,204       1,168          
  (/) Total capitalization   ($)     3,828       3,897       3,907       3,958       3,844          
  (=) Net debt-to-total capitalization   (%)     30 %     30 %     30 %     30 %     30 %        

“Earnings before items”, “Earnings before items per diluted share”, “EBITDA”, “EBITDA margin”, “EBITDA before items”, “EBITDA margin before items”, “Free cash flow”, “Net debt” and “Net debt-to-total capitalization” have no standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies and therefore should not be considered in isolation or as a substitute for Net earnings, Operating income or any other earnings statement, cash flow statement or balance sheet financial information prepared in accordance with GAAP. It is important for readers to understand that certain items may be presented in different lines by different companies on their financial statements, thereby leading to different measures for different companies.

Domtar Corporation
Quarterly Reconciliation of Non-GAAP Financial Measures – By Segment 2017
(In millions of dollars, unless otherwise noted)

The following table sets forth certain non-U.S. generally accepted accounting principles (“GAAP”), financial metrics identified in bold as “Operating income (loss) before items”, “EBITDA before items” and “EBITDA margin before items” by reportable segment. Management believes that the financial metrics are useful to understand our operating performance and benchmark with peers within the industry. The Company calculates the segmented “Operating income (loss) before items” by excluding the pre-tax effect of specified items. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.

            Pulp and Paper   Personal Care   Corporate   Total
            Q1’17   Q2’17   Q3’17   Q4’17   YTD   Q1’17   Q2’17   Q3’17   Q4’17   YTD   Q1’17   Q2’17   Q3’17   Q4’17   YTD   Q1’17   Q2’17   Q3’17   Q4’17   YTD
Reconciliation of Operating income (loss)

to “Operating income (loss) before items”

                                                                                   
    Operating income (loss)   ($)   34         34   16         16   (8)        

(8)

 

42

        42
  (+) Impairment of property, plant and equipment   ($)                                        
  (+) Impact of purchase accounting   ($)                      

 

     

         
  (+) Closure and restructuring costs   ($)                                        
  (+) Litigation settlement   ($)                                        
  (=) Operating income (loss) before items   ($)   34         34   16         16  

(8)

 

     

(8)

 

42

        42
                                                                                         
Reconciliation of “Operating income (loss)

before items” to “EBITDA before items”

                                                                                   
    Operating income (loss) before items   ($)   34         34   16         16   (8)         (8)   42         42
  (+) Depreciation and amortization   ($)   64         64   16         16             80         80
                                                                                         
  (=) EBITDA before items   ($)   98         98   32         32   (8)         (8)   122         122
  (/) Sales   ($)   1,073         1,073   249         249             1,322         1,322
  (=) EBITDA margin before items   (%)   9%         9%   13%         13%             9%         9%

“Operating income (loss) before items”, “EBITDA before items” and “EBITDA margin before items” have no standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies and therefore should not be considered in isolation or as a substitute for Operating income (loss) or any other earnings statement, cash flow statement or balance sheet financial information prepared in accordance with GAAP. It is important for readers to understand that certain items may be presented in different lines by different companies on their financial statements thereby leading to different measures for different companies.

Domtar Corporation
Quarterly Reconciliation of Non-GAAP Financial Measures – By Segment 2016
(In millions of dollars, unless otherwise noted)

The following table sets forth certain non-U.S. generally accepted accounting principles (“GAAP”), financial metrics identified in bold as “Operating income (loss) before items”, “EBITDA before items” and “EBITDA margin before items” by reportable segment. Management believes that the financial metrics are useful to understand our operating performance and benchmark with peers within the industry. The Company calculates the segmented “Operating income (loss) before items” by excluding the pre-tax effect of specified items. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.

            Pulp and Paper   Personal Care (1)   Corporate   Total
            Q1’16   Q2’16   Q3’16   Q4’16   Year   Q1’16   Q2’16   Q3’16   Q4’16   Year   Q1’16   Q2’16   Q3’16   Q4’16   Year   Q1’16   Q2’16   Q3’16   Q4’16   Year
Reconciliation of Operating income (loss)

to “Operating income (loss) before items”

                                                                                   
    Operating income (loss)   ($)   19   35   89   74   217   14   15   15   13   57   (15)   (11)   (12)   (13)   (51)   18   39   92   74   223
  (+) Impairment of property, plant and equipment   ($)   21   3   5     29                       21   3   5     29
  (+) Impact of purchase accounting   ($)                   1   1                   1   1
  (+) Closure and restructuring costs   ($)   2   21   10   (2)   31         1   1             2   21   10   (1)   32
  (+) Litigation settlement   ($)                         2       2     2       2
  (=) Operating income (loss) before items   ($)   42   59   104   72   277   14   15   15   15   59   (15)   (9)   (12)   (13)   (49)   41   65   107   74   287
                                                                                         
Reconciliation of “Operating income (loss)

before items” to “EBITDA before items”

                                                                                   
    Operating income (loss) before items   ($)   42   59   104   72   277   14   15   15   15   59   (15)   (9)   (12)   (13)   (49)   41   65   107   74   287
  (+) Depreciation and amortization   ($)   73   72   71   68   284   16   15   16   17   64             89   87   87   85   348
                                                                                         
  (=) EBITDA before items   ($)   115   131   175   140   561   30   30   31   32   123   (15)   (9)   (12)   (13)   (49)   130   152   194   159   635
  (/) Sales   ($)   1,085   1,054   1,054   1,046   4,239   216   228   231   242   917             1,301   1,282   1,285   1,288   5,156
  (=) EBITDA margin before items   (%)   11%   12%   17%   13%   13%   14%   13%   13%   13%   13%             10%   12%   15%   12%   12%

“Operating income (loss) before items”, “EBITDA before items” and “EBITDA margin before items” have no standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies and therefore should not be considered in isolation or as a substitute for Operating income (loss) or any other earnings statement, cash flow statement or balance sheet financial information prepared in accordance with GAAP. It is important for readers to understand that certain items may be presented in different lines by different companies on their financial statements thereby leading to different measures for different companies.

(1) On October 1, 2016, the Company acquired 100% of the shares of Home Delivery Incontinent Supplies Co. in the United States.

Domtar Corporation
Supplemental Segmented Information
(In millions of dollars, unless otherwise noted)

        2017     2016  
        Q1     Q1     Q2     Q3     Q4     Year  
Pulp and Paper Segment                                                    
Sales   ($)     1,073       1,085       1,054       1,054       1,046       4,239  
Operating income   ($)     34       19       35       89       74       217  
Depreciation and amortization   ($)     64       73       72       71       68       284  
Impairment of property, plant and equipment   ($)           21       3       5             29  
                                                     
Paper                                                    
Paper Production   (‘000 ST)     709       785       715       726       714       2,940  
Paper Shipments – Manufactured   (‘000 ST)     745       786       752       744       739       3,021  
Communication Papers   (‘000 ST)     622       657       627       620       618       2,522  
Specialty and Packaging   (‘000 ST)     123       129       125       124       121       499  
Paper Shipments – Sourced from 3rd parties   (‘000 ST)     29       32       29       35       27       123  
Paper Shipments – Total   (‘000 ST)     774       818       781       779       766       3,144  
Pulp                                                    
Pulp Shipments(a)   (‘000 ADMT)     453       369       360       369       415       1,513  
Hardwood Kraft Pulp   (%)     4 %     6 %     4 %     5 %     8 %     6 %
Softwood Kraft Pulp   (%)     71 %     69 %     66 %     67 %     67 %     67 %
Fluff Pulp   (%)     25 %     25 %     30 %     28 %     25 %     27 %
                                                     
Personal Care Segment                                                    
Sales   ($)     249       216       228       231       242       917  
Operating income   ($)     16       14       15       15       13       57  
Depreciation and amortization   ($)     16       16       15       16       17       64  
                                                     
Average Exchange Rates   $US / $CAN     1.323       1.375       1.289       1.305       1.333       1.325  
    $CAN / $US     0.756       0.727       0.776       0.766       0.750       0.755  
    € / $US     1.066       1.103       1.130       1.116       1.078       1.107  

(a) Figures are gross of market pulp purchased from other producers on the open market for some of our paper making operations. Pulp Shipments represent the amount of pulp produced in excess of our internal requirement.

Note: the term “ST” refers to a short ton and the term “ADMT” refers to an air dry metric ton.

1 Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP Financial Measures in the appendix.

 

Source: Domtar Corporation

Domtar Corporation
INVESTOR RELATIONS
Nicholas Estrela, 514-848-5555 x 85979
Director
Investor Relations
or
MEDIA RELATIONS
David Struhs, 803-802-8031
Vice-President
Corporate Services and Sustainability

 

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