Friday, April 28, 2006
Domtar CEO Raymond Royer says the strong loonie has hammered his industry.Canada is losing its advantages as a forest-products producing country, Domtar Inc. shareholders were told yesterday as the Montreal-based multinational reported a first-quarter net loss of $24 million.
The soaring Canadian dollar plus stiff competition from countries where trees grow quickly and wages are low form just part of the gloomy picture, CEO Raymond Royer said during the company's annual meeting.
"The strengths on which the Canadian industry was built - inexpensive and abundant fibre and energy - no longer exist. Canada has become high cost compared to the rest of the world," he said.
And Domtar - which last November announced it would slash 1,800 jobs, close some Canadian operations and eliminate 17 per cent of its annual paper production - is responding by taking its production out of Canada and closer to its U.S. market.
Domtar's paper business - mainly office and commercial printing and publication papers - is its most important segment, representing about 61 per cent of its sales.
About 65 per cent of its paper is produced in the U.S. and 90 per cent of its sales are made to U.S. customers.
Before 2001, almost all of Domtar's mills were located in Canada. Now, there are only "one and one-half," the major one being in Windsor, which can supply 75 per cent of the Canadian market, reporters were told.
A pulp mill in Lebel sur Quevillon was shut indefinitely in November because of "economic conditions." Unless savings amounting to about $120 per tonne are found, the mill will not be viable, Royer told reporters.
Earlier, Quevillon's mayor and plant workers urged the company and its shareholders to get the mill back on line.
At Quevillon, fibre and labour costs alone cost $510 per tonne - excluding processing costs - while similar market pulp from Canada's competitors can be had for about $600 per tonne, Royer told the town's mayor and shareholders.
Domtar has paid $204-million in contested softwood lumber duties since the dispute began in 2002. Anticipating a possible settlement of the dispute yesterday, Royer said that should 80 per cent of that be returned to Domtar, "it would go straight to the bottom line."
The cash would lower the company's debt-to-equity ratio from 58 per cent to 55 per cent, he said.
Domtar's $52-million decrease in operating profit was largely attributable to a $33-million negative impact of a strong Canadian dollar, higher prices for energy and freight as well as lower average selling prices and shipments for lumber products, the company said.
Higher average selling prices for paper and pulp, higher paper shipments and lower softwood lumber duties helped offset the negative forces at play during the quarter, the company said.
Royer pointed out that 15 pulp and paper mills have closed in recent months in Canada, and a smaller number in the United States, cutting supply.
"We have a better balance between supply and demand, and I think this is now translated in prices," Royer said. "We are seeing price increases we have not seen in a long time."
Domtar's first-quarter loss reversed a $10-million profit in the same quarter last year, but the company has lost money on an annual basis for three years.
The firm said its loss amounted to 10 cents per share diluted, compared with net earnings of 4 cents per share in the year-earlier period. That was better than an average analyst forecast of 16 cents per share.
lmoore@thegazette.canwest.com
