Domtar Corporation (UFS)

UFS 
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Domtar Corporation (UFS)

Q4 2008 Earnings Call

February 05, 2009 10:00 AM ET

Executives

Pascal Bossé - Director of Investor Relations

John D. Williams - President and Chief Executive Officer

Daniel Buron - Senior Vice-President and Chief Financial Officer

Richard L. Thomas - Senior Vice-President, Sales

Michael Edwards - Group Senior Vice-President, Pulp and Paper Manufacturing

Analysts

George Staphos - Bank of America-Merrill Lynch

Richard Skidmore - Goldman Sachs

Stephen Atkinson - BMO Capital Markets

Christopher Chun - Deutsche Bank

Steven Chercover - D. A. Davidson & Co.

Claudia Shank Hueston - J.P. Morgan

Presentation

Operator

Good day, ladies and gentlemen welcome to the Domtar Fourth Quarter 2008 Financial Results Conference Call. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. (Operator Instructions).

I would now like turn the meeting over to Pascal Bossé. Please go ahead sir.

Pascal Bossé

Alright, thank you. Thank you, Michelle. Good morning and welcome to our fourth quarter 2008 earnings call. Joining me today are John Williams, President and CEO; Daniel Buron, CFO; Dick Thomas, Senior VP of Sales and Mike Edwards, Senior VP, Pulp and Paper Manufacturing.

Management will begin with formal remarks, after which we will take questions. During the call, references will be made to supporting slide and you can find this presentation in the Investor Section of the website. As a reminder, all statements during the call that are not based on historical facts are forward-looking statements subject to number of risks and uncertainties. I invite you to review Domtar's filings with the Securities Commissions for a listing of those.

And finally, certain non-U.S. GAAP financial measures will be presented and discussed and you can find the reconciliation to the closest GAAP measures in the appendix of this morning's release and on our website.

So with that, I'll turn the call over to our CEO. John?

John D. Williams

Thank you Pascal and good morning everyone. This is my first earnings conference call as President and CEO of Domtar and I look forward to sharing my initial thoughts with you this morning.

I have just completed little over a month in the role, but my due-diligence process began in the fall when I spent time reading about our organization, our business, our asset base and the market dynamics. And I think we can all realize these of difficult but dynamic times in the industry.

However, my first impressions are that we've some real opportunities and some great building blocks we can leverage to overcome the economic crises and lead Domtar to the next level of success. This morning, I plan to share some of these early observations and our priorities.

But first I think, the order of the day is to discuss our fourth quarter results and for that, I will now turn the call over to Daniel.

Daniel Buron

Thank you, John and good morning everyone.

Starting with the highlights on slide four; Domtar reported to be a net loss of $1.31 per diluted share for the fourth quarter compared to net earnings of $0.08 per diluted share in Q3, including the result for impairment charges totaling $591 million. Adjusting for impairment charges and other items, are less with $0.04 per share in the fourth quarter compared to earnings of $0.10 per share in the third quarter.

Our results in the fourth quarter suffer from a poor market conditions, especially in our Paper segments where a combined drop in paper volumes and within pulp markets resulted in increased cost of machine down payment slowdown.

In the quarter, we took a total of 197,000 tonnes of paper production procurement and 100,000 metric tonnes of pulp productions procurements. To balance our system and reduce downtime costs, we've announced this morning the closure of paper machine at our Plymouth, North Carolina mill removing about 300,000 tonnes of paper-making capacity. This closure is an addition of our closure or our Dryden driving paper machine in late November, 2008.

Turning to a sequential comparison of earnings on slide five; sales were down $160 million compared to the third quarter, mostly which a lower volume in paper and a decline in prices for pulp. Cost of goods sold, reduced by $39 million due to lower paper and pulp production, favorable foreign exchange and lower energy prices.

Depreciation and amortization decreased $9 million mostly from foreign exchange variation. In the quarter, we took an impairment charge of $387 million to property, plant and equipment mostly related to driving on Ontario pulp and paper complex. This impairment is the result of the decision announced in December to permanently close the paper machine at this location. We also finalized our annual goodwill debt and wrote down the entire goodwill related to our paper business.

In the quarter, other operating income was $8 million mostly related to foreign exchange gains on working capital items. And finally interest expense was $13 million lower and that includes a $12 million gain on some debt buyback that I will cover in a minute.

Turning to our earnings reconciliation; we report a net loss of $676 million or $1.31 per share. This includes the following after-tax items: impairment of goodwill of $321 million, impairment of fixed assets and intangible assets of $270 million, charge of $52 million for valuation allowance on Canadian deferred income tax assets, closure and restructuring costs of $18 million, gain on debt repurchase of $8 million and the final leg of costs related to synergy and integration amounting to $3 million. So excluding these items, we had a loss of $20 million or $0.04 per share.

Read the rest of this transcript for free on seekingalpha.com