Domtar Corporation Reports Preliminary First Quarter 2021 Financial Results

Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported a net loss of $29 million ($0.54 per share) for the first quarter of 2021 compared to a net loss of $59 million ($1.07 per share) for the fourth quarter of 2020 and net earnings of $5 million ($0.09 per share) for the first quarter of 2020. Sales for the first quarter of 2021 were $944 million.

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20210506005589/en/

The first quarter 2021 results include an after-tax loss of $22 million ($0.41 per share) from discontinued operations related to the sale of the Personal Care Business, compared to an after-tax loss of $43 million ($0.78 per share) for the fourth quarter of 2020 and an after-tax earnings of $20 million ($0.36 per share) for the first quarter of 2020.

Excluding discontinued operations and the items listed below, the Company had earnings from continuing operations before items¹ of $5 million ($0.09 per share) for the first quarter of 2021 compared to earnings from continuing operations before items¹ of $19 million ($0.34 per share) for the fourth quarter of 2020 and a loss from continuing operations before items¹ of $15 million ($0.27 per share) for the first quarter of 2020.

ITEMS

Description	Segment	Line item	Amount	After-tax effect	EPS impact (per share)
			(in millions)
First quarter 2021
Cost reduction program	Pulp and Paper	Impairment of long-lived assets	$6	$4	$0.07
Cost reduction program	Pulp and Paper	Closure and restructuring costs	$2	$1	$0.02
Cost reduction program	Pulp and Paper	Asset conversion costs	$8	$6	$0.11
Cost reduction program	Corporate	Closure and restructuring costs	$1	$1	$0.02
Fourth quarter 2020
Cost reduction program	Pulp and Paper	Impairment of long-lived assets	$25	$15	$0.27
Cost reduction program	Pulp and Paper	Closure and restructuring costs	$28	$19	$0.34
Cost reduction program	Corporate	Closure and restructuring costs	$2	$1	$0.02
First quarter 2020
None

QUARTERLY REVIEW

“While COVID-19 continued to remain the dominant challenge in the first quarter, severe winter weather affected our production and our supply chains across North America, notably at our Ashdown, AR market pulp mill. Nevertheless, we got off to a reasonably good start to the year and we expect strong second half results driven by price momentum and strong volume in paper and pulp,” said John D. Williams, President and Chief Executive Officer. “The Kingsport conversion is progressing well. The project is on schedule, and the crews on site are currently completing demolition and preparing the site for the new buildings and warehouse. We are also making good progress with our commercial strategy and the customer response continues to be extremely positive.”

Mr. Williams added, “During the quarter, we successfully closed the sale of the Personal Care business. The sale is part of our ongoing effort to strategically optimize our portfolio and it allowed us to strengthen our balance sheet, enhance liquidity and repurchase shares.”

Operating income was $2 million in the first quarter of 2021 compared to an operating loss of $20 million in the fourth quarter of 2020. Depreciation and amortization totaled $54 million in the first quarter of 2021.

Operating income before items¹ was $19 million in the first quarter of 2021 compared to operating income before items¹ of $35 million in the fourth quarter of 2020.

(In millions of dollars)		1Q 2021				4Q 2020
Sales		$	944			$	920
Operating income (loss)
Pulp and Paper segment			12				(10	)
Corporate			(10	)			(10	)
Total operating income (loss)			2				(20	)
Operating income before items1			19				35
Depreciation and amortization			54				53

The increase in operating income in the first quarter of 2021, compared to the prior quarter, was the result of lower long-lived asset impairment and closure and restructuring charges related to the cost savings program, higher average selling prices in pulp, lower maintenance costs and favorable exchange rates. These factors were partially offset by higher raw material and freight costs, asset conversion costs, unfavorable productivity, higher selling, general and administrative expenses and higher fixed costs.

When compared to the fourth quarter of 2020, manufactured paper shipments were up 1% and pulp shipments were flat. The shipment-to-production ratio for paper was 102% in the first quarter of 2021, compared to 98% in the fourth quarter of 2020. Paper inventories decreased by 13,000 tons, and pulp inventories decreased by 38,000 metric tons when compared to the fourth quarter of 2020.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from operating activities was $33 million and capital expenditures were $51 million, resulting in a negative free cash flow¹ of $18 million for the first quarter of 2021. Domtar’s net debt-to-total capitalization ratio¹ stood at 6% at March 31, 2021 compared to 26% at December 31, 2020.

OUTLOOK

Paper demand will remain dependent upon recovery from COVID-19, but demand is expected to continue to rebound through the year as people return to schools and offices. Near-term pulp markets should remain balanced due to steady demand growth and limited new supply. Recently announced price increases in both pulp and paper will positively impact our results. The second quarter will be affected by seasonally higher maintenance costs in our Pulp and Paper business as we move into the planned outages at some of our major facilities.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 10:00 a.m. (ET) to discuss its first quarter 2021 financial results. Financial analysts are invited to participate in the call by dialing 1 [phone] 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 2021 earnings results on August 5, 2021 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 airlaid nonwovens. With approximately 6,400 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 $3.7 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 the COVID-19 pandemic and the resulting decrease in paper sales and the challenges we face in maintaining manufacturing operations, changes in customer demand and pricing, changes in manufacturing costs, future acquisitions and divestitures, including facility closings, the failure to achieve our cost containment goals, costs of conversion in excess of our expectations, demand for linerboard, and the other reasons identified under “Risk Factors” in our Form 10-K for 2020 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 Consolidated Statements of Earnings (Loss) (In millions of dollars, unless otherwise noted)
		For the three months ended
		March 31,				March 31,
		2021				2020
		(Unaudited)
		$				$
Sales			944				1,031
Operating expenses
Cost of sales, excluding depreciation and amortization			809				906
Depreciation and amortization			54				58
Selling, general and administrative			64				66
Impairment of long-lived assets			6				—
Closure and restructuring costs			3				—
Asset conversion costs			8				—
Other operating (income) loss, net			(2	)			2
			942				1,032
Operating income (loss)			2				(1	)
Interest expense, net			15				14
Non-service components of net periodic benefit cost			(6	)			(4	)
Loss before income taxes and equity loss			(7	)			(11	)
Income tax expense			—				3
Equity method investment loss, net of taxes			—				1
Loss from continuing operations			(7	)			(15	)
(Loss) earnings from discontinued operations, net of taxes			(22	)			20
Net (loss) earnings			(29	)			5
Per common share (in dollars)
Basic net (loss) earnings
Loss from continuing operations			(0.13	)			(0.27	)
(Loss) earnings from discontinued operations			(0.41	)			0.36
Basic net (loss) earnings			(0.54	)			0.09
Diluted net (loss) earnings
Loss from continuing operations			(0.13	)			(0.27	)
(Loss) earnings from discontinued operations			(0.41	)			0.36
Diluted net (loss) earnings			(0.54	)			0.09
Weighted average number of common shares outstanding (millions)
Basic			53.5				56.1
Diluted			53.5				56.2

Domtar Corporation Consolidated Balance Sheets at (In millions of dollars)
		March 31,				December 31,
		2021				2020
		(Unaudited)
		$				$
Assets
Current assets
Cash and cash equivalents			671				309
Receivables, less allowances of $5 and $6			450				380
Inventories			600				630
Prepaid expenses			53				50
Income and other taxes receivable			49				54
Assets held for sale			—				1,133
Total current assets			1,823				2,556
Property, plant and equipment, net			2,022				2,023
Operating lease right-of-use assets			55				59
Intangible assets, net			29				29
Other assets			192				189
Total assets			4,121				4,856
Liabilities and shareholders' equity
Current liabilities
Bank indebtedness			4				—
Trade and other payables			504				484
Income and other taxes payable			16				15
Operating lease liabilities due within one year			19				20
Long-term debt due within one year			301				13
Liabilities held for sale			—				295
Total current liabilities			844				827
Long-term debt			503				1,084
Operating lease liabilities			47				50
Deferred income taxes and other			324				321
Other liabilities and deferred credits			312				314
Shareholders' equity
Common stock			1				1
Additional paid-in capital			1,493				1,717
Retained earnings			817				846
Accumulated other comprehensive loss			(220	)			(304	)
Total shareholders' equity			2,091				2,260
Total liabilities and shareholders' equity			4,121				4,856

Domtar Corporation Consolidated Statements of Cash Flows (In millions of dollars)
	For the three months ended
	March 31,				March 31,
	2021				2020
	(Unaudited)
	$				$
Operating activities
Net (loss) earnings		(29	)			5
Adjustments to reconcile net (loss) earnings to cash flows from operating activities
Depreciation and amortization		64				72
Deferred income taxes and tax uncertainties		(4	)			1
Impairment of long-lived assets		6				—
Net loss on disposition of discontinued operations		32				—
Stock-based compensation expense		2				1
Equity method investment loss, net		—				1
Other		2				—
Changes in assets and liabilities, excluding the effect of sale of business
Receivables		(68	)			(28	)
Inventories		32				28
Prepaid expenses		3				(5	)
Trade and other payables		(6	)			(16	)
Income and other taxes		4				39
Difference between employer pension and other post-retirement contributions and pension and other post-retirement expense		(3	)			(1	)
Other assets and other liabilities		(2	)			(9	)
Cash flows from operating activities		33				88
Investing activities
Additions to property, plant and equipment		(51	)			(62	)
Proceeds from sale of business, net of cash disposed		897				—
Cash flows provided from (used for) investing activities		846				(62	)
Financing activities
Dividend payments		—				(26	)
Stock repurchase		(223	)			(59	)
Net change in bank indebtedness		4				(10	)
Change in revolving credit facility		—				140
Proceeds from receivables securitization facility		—				25
Repayments of long-term debt		(294	)			—
Other		(3	)			(3	)
Cash flows (used for) provided from financing activities		(516	)			67
Net increase in cash and cash equivalents		363				93
Impact of foreign exchange on cash		(1	)			(2	)
Cash and cash equivalents at beginning of period		309				61
Cash and cash equivalents at end of period		671				152
Supplemental cash flow information
Net cash payments (refund) for:
Interest		18				17
Income taxes		(7	)			(25	)

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 (loss) from continuing operations before items”, “Earnings (loss) from continuing operations 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 (loss) from continuing operations 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.

						2021				2020
						Q1				Q1				Q2				Q3				Q4				Year
Reconciliation of "Earnings (loss) from continuing operations before items" to Net (loss) earnings
		Net (loss) earnings		($)			(29	)			5				19				(92	)			(59	)			(127	)
	(-)	Loss (earnings) from discontinued operations, net of taxes		($)			22				(20	)			(22	)			(19	)			43				(18	)
	(+)	Impairment of long-lived assets		($)			4				—				—				68				15				83
	(+)	Closure and restructuring costs		($)			2				—				1				42				20				63
	(+)	Asset conversion costs		($)			6				—				—				—				—				—
	(=)	Earnings (loss) from continuing operations before items		($)			5				(15	)			(2	)			(1	)			19				1
	(/)	Weighted avg. number of common shares outstanding (diluted)		(millions)			53.5				56.2				55.3				55.2				55.2				55.4
	(=)	Earnings (loss) from continuing operations before items per diluted share		($)			0.09				(0.27	)			(0.04	)			(0.02	)			0.34				0.02
Reconciliation of "EBITDA" and "EBITDA before items" to Net (loss) earnings
		Net (loss) earnings		($)			(29	)			5				19				(92	)			(59	)			(127	)
	(-)	Loss (earnings) from discontinued operations, net of taxes		($)			22				(20	)			(22	)			(19	)			43				(18	)
	(+)	Equity method investment loss, net of taxes		($)			—				1				—				1				1				3
	(+)	Income tax expense (benefit)		($)			—				3				(11	)			(52	)			(16	)			(76	)
	(+)	Interest expense, net		($)			15				14				15				14				15				58
	(+)	Depreciation and amortization		($)			54				58				56				56				53				223
	(+)	Impairment of long-lived assets		($)			6				—				—				111				25				136
	(-)	Net gains on disposals of property, plant and equipment		($)			—				—				—				—				(1	)			(1	)
	(=)	EBITDA		($)			68				61				57				19				61				198
	(/)	Sales		($)			944				1,031				802				899				920				3,652
	(=)	EBITDA margin		(%)			7	%			6	%			7	%			2	%			7	%			5	%
		EBITDA		($)			68				61				57				19				61				198
	(+)	Closure and restructuring costs		($)			3				—				1				68				30				99
	(+)	Asset conversion costs		($)			8				—				—				—				—				—
	(=)	EBITDA before items		($)			79				61				58				87				91				297
	(/)	Sales		($)			944				1,031				802				899				920				3,652
	(=)	EBITDA margin before items		(%)			8	%			6	%			7	%			10	%			10	%			8	%
Reconciliation of "Free cash flow" to Cash flows from operating activities
		Cash flows from operating activities		($)			33				88				67				121				135				411
	(-)	Additions to property, plant and equipment		($)			(51	)			(62	)			(40	)			(28	)			(45	)			(175	)
	(=)	Free cash flow		($)			(18	)			26				27				93				90				236
"Net debt-to-total capitalization" computation
		Bank indebtedness		($)			4				—				—				—				—
	(+)	Long-term debt due within one year		($)			301				1				13				13				13
	(+)	Long-term debt		($)			503				1,101				1,088				1,085				1,084
	(=)	Debt		($)			808				1,102				1,101				1,098				1,097
	(-)	Cash and cash equivalents		($)			(671	)			(152	)			(124	)			(218	)			(309	)
	(=)	Net debt		($)			137				950				977				880				788
	(+)	Shareholders' equity		($)			2,091				2,181				2,277				2,211				2,260
	(=)	Total capitalization		($)			2,228				3,131				3,254				3,091				3,048
		Net debt		($)			137				950				977				880				788
	(/)	Total capitalization		($)			2,228				3,131				3,254				3,091				3,048
	(=)	Net debt-to-total capitalization		(%)			6	%			30	%			30	%			28	%			26	%

“Earnings (loss) from continuing operations before items”, “Earnings (loss) from continuing operations 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 (loss) earnings 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 2021

(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										Corporate										Total
						Q1'21		Q2'21		Q3'21		Q4'21		YTD		Q1'21		Q2'21		Q3'21		Q4'21		YTD		Q1'21		Q2'21		Q3'21		Q4'21		YTD
Reconciliation of Operating income (loss) to "Operating income (loss) before items"
		Operating income (loss)		($)		12		—		—		—		12		(10)		—		—		—		(10)		2		—		—		—		2
	(+)	Impairment of long-lived assets		($)		6		—		—		—		6		—		—		—		—		—		6		—		—		—		6
	(+)	Closure and restructuring costs		($)		2		—		—		—		2		1		—		—		—		1		3		—		—		—		3
	(+)	Asset conversion costs		($)		8		—		—		—		8		—		—		—		—		—		8		—		—		—		8
	(=)	Operating income (loss) before items		($)		28		—		—		—		28		(9)		—		—		—		(9)		19		—		—		—		19
Reconciliation of "Operating income (loss) before items" to "EBITDA before items"
		Operating income (loss) before items		($)		28		—		—		—		28		(9)		—		—		—		(9)		19		—		—		—		19
	(+)	Non-service components of net periodic benefit cost		($)		6		—		—		—		6		—		—		—		—		—		6		—		—		—		6
	(+)	Depreciation and amortization		($)		54		—		—		—		54		—		—		—		—		—		54		—		—		—		54
	(=)	EBITDA before items		($)		88		—		—		—		88		(9)		—		—		—		(9)		79		—		—		—		79
	(/)	Sales		($)		944		—		—		—		944		—		—		—		—		—		944		—		—		—		944
	(=)	EBITDA margin before items		(%)		9%		—		—		—		9%		—		—		—		—		—		8%		—		—		—		8%

“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 2020

(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										Corporate										Total
						Q1'20		Q2'20		Q3'20		Q4'20		Year		Q1'20		Q2'20		Q3'20		Q4'20		Year		Q1'20		Q2'20		Q3'20		Q4'20		Year
Reconciliation of Operating income (loss) to "Operating income (loss) before items"
		Operating income (loss)		($)		4		3		(140)		(10)		(143)		(5)		(7)		(12)		(10)		(34)		(1)		(4)		(152)		(20)		(177)
	(+)	Impairment of long-lived assets		($)		—		—		111		25		136		—		—		—		—		—		—		—		111		25		136
	(+)	Closure and restructuring costs		($)		—		1		67		28		96		—		—		1		2		3		—		1		68		30		99
	(=)	Operating income (loss) before items		($)		4		4		38		43		89		(5)		(7)		(11)		(8)		(31)		(1)		(3)		27		35		58
Reconciliation of "Operating income (loss) before items" to "EBITDA before items"
		Operating income (loss) before items		($)		4		4		38		43		89		(5)		(7)		(11)		(8)		(31)		(1)		(3)		27		35		58
	(+)	Non-service components of net periodic benefit cost		($)		4		6		4		5		19		—		(1)		—		(1)		(2)		4		5		4		4		17
	(-)	Net gains on disposals of property, plant and equipment		($)		—		—		—		(1)		(1)		—		—		—		—		—		—		—		—		(1)		(1)
	(+)	Depreciation and amortization		($)		58		56		56		53		223		—		—		—		—		—		58		56		56		53		223
	(=)	EBITDA before items		($)		66		66		98		100		330		(5)		(8)		(11)		(9)		(33)		61		58		87		91		297
	(/)	Sales		($)		1,031		802		899		920		3,652		—		—		—		—		—		1,031		802		899		920		3,652
	(=)	EBITDA margin before items		(%)		6%		8%		11%		11%		9%		—		—		—		—		—		6%		7%		10%		10%		8%

“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 Supplemental Segmented Information (In millions of dollars, unless otherwise noted)
				2021				2020
				Q1				Q1				Q2				Q3				Q4				Year
Pulp and Paper Segment
Sales		($)			944				1,031				802				899				920				3,652
Operating income (loss)		($)			12				4				3				(140	)			(10	)			(143	)
Depreciation and amortization		($)			54				58				56				56				53				223
Impairment of long-lived assets		($)			6				—				—				111				25				136
Paper
Paper Production		('000 ST)			534				648				436				524				551				2,159
Paper Shipments - Manufactured		('000 ST)			546				679				459				550				542				2,230
Communication Papers		('000 ST)			453				569				366				449				441				1,825
Specialty and Packaging Papers		('000 ST)			93				110				93				101				101				405
Paper Shipments - Sourced from 3rd parties		('000 ST)			18				22				12				16				19				69
Paper Shipments - Total		('000 ST)			564				701				471				566				561				2,299
Pulp
Pulp Shipments		('000 ADMT)			481				422				459				424				482				1,787
Pulp Shipments mix:
Hardwood Kraft Pulp		(%)			4	%			3	%			2	%			4	%			6	%			4	%
Softwood Kraft Pulp		(%)			60	%			52	%			57	%			62	%			62	%			58	%
Fluff Pulp		(%)			36	%			45	%			41	%			34	%			32	%			38	%
Average Exchange Rates		$US / $CAN			1.266				1.344				1.385				1.332				1.304				1.341
		$CAN / $US			0.790				0.744				0.722				0.751				0.767				0.746
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. 

View source version on businesswire.com: https://www.businesswire.com/news/home/20210506005589/en/