Domtar Corporation (UFS)

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Domtar Corporation (UFS)

2013 Goldman Sachs Paper, Forest Products and Packaging Conference

March 14, 2013 8:45 am ET


Daniel Buron - Chief Financial Officer, Principal Accounting Officer and Senior Vice President


Carly Mattson - Goldman Sachs Group Inc., Research Division


Carly Mattson - Goldman Sachs Group Inc., Research Division

All right. For those of you who don't know me, I'm the investment-grade paper and packaging analyst here at Goldman. I'm Carly Mattson. And next up, we have Domtar and Daniel Buron, the CFO. So we'll turn the time over to him.

Daniel Buron

So good morning. Welcome to Montréal. Hope you're enjoying the city. I know the weather is not great, but I hope you're enjoying the city. It's always a pleasure to present at probably the only conference we're making in Montréal, and since our head office is actually a few streets from here, it's very convenient for us.

I won't spend a lot of time on that first slide. I think you've seen it often enough, but I'm going to likely make some forward-looking statements. And obviously, forward-looking statements are subject to risks that, if you want to have a description of those, you can consult our filing with the SEC.

Who are we? Domtar is a leading innovative fiber-based technology company that design, manufacture and market a wide variety of fiber-based products. Actually, the foundation of our business is a very strong, world-class wood-converting asset for which -- from which we do a combination of steam power and pulp. And the pulp is, in large part, consumed internally in our paper manufacturing process and also, to a lesser extent but growing, in our AI or Personal Care business.

We're the largest manufacturer of uncoated freesheet in North America and one of the largest globally, too. And we have, as I just mentioned, a small but exciting and growing Personal Care business.

At a glance, Domtar is a $5.5 billion company. Paper represents around 80% of that. We have a small distribution business. It's actually still a traditional paper merchant, growing a little bit in the packaging side of the business and the digital and wide-format side of the business, but mainly traditional, so it's actually selling mostly uncoated and coated paper. And we have our Personal Care segment that started in -- 18 months ago in September 2011 with the acquisition of Attends in the U.S.

The Personal Care segment represents more or less 7% of our sales in 2012. Actually, if you look at the fourth quarter run rate, it's more 8% of our business. We've delivered $800 million of EBITDA last year and a free cash flow of $315 million.

Our business is divided into 3 segments: the Papers segment, the Distribution segment and the Personal Care segment. Paper is in turn divided into 2 businesses. One is Pulp, the foundation of the business. And the other business is actually the biggest segment we have, the Paper business.

I have still a few words on each. At Pulp, we produce more or less 4.3 million tons of pulp per year, a combination of hardwood, softwood and fluff. We consume most of it internally, most of it in our Paper business; a portion of it, fluff, in our Personal Care business; and the rest, our long position is actually sold in the market.

We have, more or less, depending on market conditions and trade we're doing for logistic reasons and species reasons, we have more or less the ability to sell 1.6 million tons of pulp per year. And the lion's share of that is softwood. The second specie is fluff. Fluff is a subcategory of softwood. And we have a very small position in hardwood. Most of our pulp is sold offshore, a bit here in Canada and another significant portion in the U.S.

On the Paper side, as I've mentioned, 3.4 million ton capacity, largest marketer and manufacturer of uncoated freesheet in North America. We have 2 uncoated freesheet mills, and this is supported by converting facilities inside and outside our location. Most of our paper is sold in North America, U.S. being the primary market, a little bit in Canada, and we also export a portion of our production.

Paper is actually divided into 2 groups: Communication paper and Specialty and packaging paper. So Communication paper is the one that were -- and we all know is declining average about 3%, 4% per year, if you look at the last 10 years. And that's I think a good forecast for the next few years. And Packaging is actually growing at more or less GDP. We grew last year more than that, in part because of our deal with Appleton. So thank you for that. So that's more or less at a glance our Paper segment, so Pulp and Paper.

Our Distribution, as I mentioned, traditional merchant business, 23 (sic) [22] locations. Its very original distribution business. We're Eastern Canada and Midwest Eastern in the U.S. It's actually a good route for our own paper. They sell -- and their volume, more or less 30% of what they sell in the market is actually Domtar paper and the rest, 70%, is coming from many, many different suppliers. Obviously, we're their prime supplier of uncoated freesheet, and they buy a little bit outside of Domtar, and they buy coated, obviously, because we're not producing that.

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