Bank of America Global Agriculture & Materials Conference - March 4, 2021 - Domtar
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March 4, 2021
Bank of America Global
Agriculture & Materials
Conference
All financial information is in U.S. dollars, and all earnings
per share results are diluted, unless otherwise noted
Safe Harbor Forward-Looking Statements All statements in this presentation about our expectations and future performance, including the statements related to our “Strategic Initiatives,” 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. Risk Factors For a summary of the risk factors, please refer to Domtar’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission and as updated by subsequently filed Form 10-Q’s. Non-GAAP Financial Measures This presentation refers to non-GAAP financial information. For a reconciliation to GAAP financial measures, please refer to the investors section of the company’s website at http://www.domtar.com (Refer to Earnings in the Investor Relations section of the website). BANK OF AMERICA GLOBAL AGRICULTURE & MATERIALS CONFERECE | MARCH 4, 2021 2
Domtar’s Purpose :
Building Value from Fiber
The Most Innovative Fiber Company Occupying Strong Positions Across Most of the Value Chain
Domtar …Transforms …and Converts
…Sells ~2.1M
Purchases Fiber This Fiber Into ~1.7M Tons of
Tons of Pulp on
From Public Various Wood Pulp Into
the Open
and Private Pulps and Finished
Markets…
Owners… Energy… Products
• Purchase and process 16M • Fluff pulp is sold to the • Most of the hardwood pulp
green tons of wood fiber hygiene industry is converted into paper:
(either logs or wood chips) ─ ~0.9M ADMT installed ─ ~2.2M tons of various
• 7.5M tons per year of bark capacity paper grades
and other wood residues • Softwood is sold mostly to
are processed in boilers tissue and towel
and co-generation manufacturers and various
turbines to produce green specialty paper grades
power • Close to 3.8M tons of pulp
are produced in various ─ ~1.1M ADMT
Domtar facilities • Domtar also sells pulp for
• Comprehensive pulp other specialty
production capabilities: applications, for example,
─ Fluff plastic composites,
cement boards • …and airlaid absorbent
─ Northern softwood for residential cores which are sold to
─ Southern softwood sidings, etc. personal care product
─ Hardwood manufacturers
• Over 500 Megawatt hours
of power generation
BANK OF AMERICA GLOBAL AGRICULTURE & MATERIALS CONFERECE | MARCH 4, 2021 3
Key Strategic Pillars to Drive Growth
Focused on Driving Innovation, Enhancing Our Operating Platforms and Delivering High Quality
Products
Deploy Capital
Towards Growth
Drive Value in Pulp Expand Into Growth Harvest and
While Returning
& Paper Business Businesses Innovate
Cash to
Shareholders
• Operate an optimal • Expand our • A balanced and • Harvest investments in
portfolio of strategic operations in markets disciplined approach pulp
assets with positive demand to capital allocation
dynamics • Innovate and
• Increase productivity • Committed to execute on new
in our pulp business • Asset repurposing, deploying capital opportunities in the
organic growth only to the areas that wood fiber market
• Pursue new sources investments and will achieve the best
of paper strategic acquisitions possible return for our
consumption stockholders
BANK OF AMERICA GLOBAL AGRICULTURE & MATERIALS CONFERECE | MARCH 4, 2021 4
Progress Towards Our Strategic Initiatives and Next
Steps For 2021 and Beyond
Summary of Initiative Key Steps Taken Key Next Steps
Disclosed August 7, 2020 2020 2021+
• Achieved 70% of run-rate
savings to date
Targeting $200MM in
• Targeted areas include • Remain on track to
annual run-rate savings to
capacity reductions and achieve $200MM target by
Cost Reduction be realized by the end of the end of 2021
2021 asset closures, mill-level
Program cost savings and rightsizing
support functions
• Kingsport, TN mill to • Agreement with Voith to
high-quality recycled provide equipment & • Expect to complete
technical services Kingsport conversion by
Executing On linerboard
• Ashdown, AR to 100% • Actively building our teams end of 2022
Our Asset
fluff/ softwood pulp; including sales, fiber • Expected to complete
Conversion procurement & quality
preliminary engineering Ashdown, AR engineering
Roadmap study for low-cost study by early 2022
• Signed several NDAs with
linerboard potential customers
Evaluate a range of value-
creating alternatives for • Announced agreement to
Personal Care sell Personal Care to
Strategic Review Personal Care, including a • Closed March 1, 2021
American Industrial
potential sale of the Partners for $920MM
business
BANK OF AMERICA GLOBAL AGRICULTURE & MATERIALS CONFERECE | MARCH 4, 2021 5
Introducing the Future of Domtar
Complementary Portfolio Driving Sustainable and Profitable Growth Over the Long Term
Future Domtar
Paper Pulp Packaging
• Highly cash generative • Leading market position
• Potential capacity of
and reliable business with exposure to
2.5M tons over time
attractive categories
• Well invested, low cost (i.e. tissue, hygiene) • Differentiated
mills commercial strategy
• Continuing to focus on
• Distinctive, flexible enabling independents
low risk / high return
service model to win in the
investments to bring
marketplace
• Favorable supply assets close to first
dynamics quartile and drive stable
growth
BANK OF AMERICA GLOBAL AGRICULTURE & MATERIALS CONFERECE | MARCH 4, 2021 6
Well Positioned as the Uncoated Freesheet
Leader in North America
Domtar Continues to Strengthen its Leadership Position in North American Uncoated Freesheet Market
Annual Capacity (Millions of Short Tons)
Recently announced
2,224 printing papers to be spun-
off into standalone public
entity
1,660
Announced conversion of 365k
ton Jackson, Alabama paper
machine to containerboard
860
500
360
260
145 90 85 80 50
Domtar International PCA Finch/Twin Evergreen Pixelle American Verso Resolute Willamette Other
Paper Rivers Eagle Falls
• Low cost assets with limited future • Only paper supplier in North
capital requirements America with a national presence
and truly committed to paper Top performer with highly
─ Redefining our cost basis
through $200M cost reduction ─ Major paper buyers seeking to resilient and strong cash
program pivot more volume towards flows in all market
Domtar and increasingly
─ Targeting mid to high-teens conditions
EBITDA margins looking to develop long term
relationships
Source: AF&PA, PPI
BANK OF AMERICA GLOBAL AGRICULTURE & MATERIALS CONFERECE | MARCH 4, 2021 7
Global Leader in the Profitable and Growing
Pulp Market
Pulp Prices Recovering from Recent Trough Levels
NBSK Pulp Price (US$ per Tonne)
$1,500
Prices are beginning to rise,
as a result of several recently
$1,400 announced price increases
$1,300
$1,200 $1,185
$1,100
$1,000
Dec-17 Apr-18 Aug-18 Dec-18 Apr-19 Aug-19 Dec-19 Apr-20 Aug-20 Dec-20
…With Domtar Positioned to Maximize Value …Solidifying the Company as One of the Most
Through High-Return Projects… Competitive Suppliers of Premium Pulp in the World
Modernize, integrate & optimize platforms in order to
Hardwood
drive market pulp mills towards 1st quartile cash costs RoW 4%
36% North
Softwood
America
58%
39%
Debottleneck, improve energy efficiency and make
several additional upgrades at four of our mills Fluff
38%
China
High return projects
24%
Source: RISI 2020
BANK OF AMERICA GLOBAL AGRICULTURE & MATERIALS CONFERECE | MARCH 4, 2021 8
We Will Create a Transformative Low-Cost
Packaging Platform in North America
Opportunity to Build Differentiated Strategy Across Products and Supply Chain Approach
State of the North American
What Domtar Brings to the Market
Containerboard Market
• ~40M tons, growing at ~2% per year, or 800,000 tons • Proven track record of successful large-scale mill
per year conversions
• Attractive supply / demand dynamics • Highly competitive packaging assets with potential
capacity of 2.5M tons
─ Continued demand growth, especially driven by
e-commerce • Flexibility to build a business tailored to take
advantage of future trends of the industry
─ Tight supply conditions due to rapid demand
growth for boxes • Targeting a diversified portfolio of independent
packaging companies
• Minimal supply of light weight products
• Significant optionality in repurposing roadmap
─ Majority of North American boxes are over
designed for their use ─ Ability to respond to evolution of paper demand
and containerboard market conditions
• Robust independent converter market
BANK OF AMERICA GLOBAL AGRICULTURE & MATERIALS CONFERECE | MARCH 4, 2021 9
Kingsport Conversion Will Position Domtar as a
Key Player in the Containerboard Market
North American Containerboard Capacity and Market Share
Total Containerboard Recycled Containerboard
WestRock
Others 18%
24%
International
Paper
Others
31%
41%
Pratt Paper 42M 13M International
Paper
4%
Tons Tons 15%
Georgia-
Pacific
9%
Pratt Paper
PCA WestRock 12%
10% 22% New-
Indy Cascades
5% 9%
Source: RISI North American Packaging Capacity Report (2019)
BANK OF AMERICA GLOBAL AGRICULTURE & MATERIALS CONFERECE | MARCH 4, 2021 10Differentiated Value Proposition to De-Risk Our
Packaging Strategy
We Will Truly Partner With the Independents to Win in the Marketplace
Unleash Growth Potential
of Independents Currently
…Substantial Constrained by Integrated
Opportunity Producers with
Opportunity for JVs and/or
Integration
Large Addressable Market Preliminary Discussions
…Attractive
Across Independents, with Potential Customers
Market &
Customers…
Converters with Mill Validate Our Value
Affiliations, etc. Proposition
Strong Balance Sheet and Strong Team Already in Ability to Leverage Our
Strong Highly Cash Generative Place with Deep Extensive Network of
Foundation… Paper Business to Support Understanding of the Existing Relationships at
Investments Market Domtar
BANK OF AMERICA GLOBAL AGRICULTURE & MATERIALS CONFERECE | MARCH 4, 2021 11Future Domtar: Stable Long Term Revenue Growth
Potential to Build Packaging Into Major Contributor Over Time
Illustrative Evolution of Revenue by Segment
Packaging
Paper
Pulp
Today Future Domtar
BANK OF AMERICA GLOBAL AGRICULTURE & MATERIALS CONFERECE | MARCH 4, 2021 12We Are Committed to Delivering Long Term
Shareholder Value
A Fiber-Based Company That is Ready for the Future
Focused and Optimized Synergistic
1 Returning Capital to Shareholders 2 Business Portfolio
Leveraging Existing Assets to Execute
Maximizing Efficiency & Productivity
3 4 High Return Asset Repurposing
to Expand Margins
Strategy
Clear and Actionable Asset
5 Targeting Diversified Business Mix 6 Repurposing Roadmap Established
to Restore Growth Potential
Long Term Shareholder Value
BANK OF AMERICA GLOBAL AGRICULTURE & MATERIALS CONFERECE | MARCH 4, 2021 13Business Update Force Majeure at Ashdown, AR Pulp Mill • Force Majeure announced at Ashdown, Arkansas, pulp mill on February 18, 2021 • Temporarily suspended production as unusually cold weather hindered natural gas availability in the area • Restarted pulp-dryer on February 27, 2021 • Estimated lost production: 36,000 ADMT • Expected financial impact in Q1’21: $21 million BANK OF AMERICA GLOBAL AGRICULTURE & MATERIALS CONFERECE | MARCH 4, 2021 14
[placeholder for back cover] UPDATE ON OUR STRATEGIC INITIATIVES | DECEMBER [•], 2020 APPENDIX 18
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