Citi Basic Materials Conference I November 28, 2018
(All financial information in U.S. dollars, unless otherwise noted)
Citi Basic Materials ConferenceNew York, November 28, 2018
JOHN D. WILLIAMSPRESIDENT & CHIEF EXECUTIVE OFFICER
DOMTAR CORPORATION
Citi Basic Materials Conference I November 28, 2018
SAFE HARBOR
All statements in this presentation that are not based on historical facts are “forward-looking statements”, including statements relating to repurposing of mills, the impact of price increases, sales levels, margins, and the impact of our Personal Care initiatives. The company expressly disclaims any obligation to update, alter or revise these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of risks, uncertainties and other factors, many of which are outside of our control that could cause actual results to materially differ from those projected in the forward-looking statements.
For a summary of the risks that could cause actual results to defer materially, please refer to Domtar’s Annual Report on Form 10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission and as updated by subsequently-filed Form 10-Q’s.
This presentation refers to non-U.S. GAAP financial information. For a reconciliation to U.S. GAAP financial measures, please refer to the schedules attached hereto as Appendix A and the investors’ section of the company’s website at http://www.domtar.com.
Forward-Looking Statements
Non-GAAP Financial Measures
2
Citi Basic Materials Conference I November 28, 2018
ABOUT US
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Domtar is a leading provider of a wide variety of fiber-based products including communication, specialty and packaging papers, market pulp and absorbent hygiene products.
Domtar is a leading provider of a wide variety of fiber-based products including communication, specialty and packaging papers, market pulp and absorbent hygiene products.
Domtar is a leading provider of a wide variety of fiber-based products including communication, specialty and packaging papers, market pulp and absorbent hygiene products
Citi Basic Materials Conference I November 28, 2018
WHO WE ARE
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Well-defined strategy
Committed to creating
shareholder value
Strong financial
and liquidity position
Leading market position
INVESTMENT HIGHLIGHTS
$5.4 billionLTM Sales
$3.8 billionEnterprise Value
10,000Employees Worldwide
$2.7 billionMarket Capitalization
Citi Basic Materials Conference I November 28, 2018
STRATEGIC PRIORITIES
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11 22 33Drive value in Pulp and Paper business
Expand into growth businesses
Deploy capital towards growth while returning cash to shareholders� Operate an optimal portfolio of
strategic assets
� Increase productivity in our pulp business
� Pursue new sources of paper consumption
� Optimize and expand our operations in markets with positive demand dynamics
� Repurpose of assets, investments for organic growth and strategic acquisitions
� Capitalize on new opportunities in the wood fiber market
� A balanced and disciplined approach to capital allocation
� Committed to deploying capital only to the areas that will achieve the best possible return for our stockholders
As a leading fiber-based technology company, we are focused on driving innovation, enhancing our operating platforms, and delivering high quality products
Citi Basic Materials Conference I November 28, 2018
DOMTAR OVERVIEW
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Communication Papers
Business, commercial print and publishing papers
3-5%3-5%46%of 2017 sales
LT growth-rate
Personal Care
Marketer and producer of a broad line of absorbent hygiene
products
2-4%2-4%19%of 2017 sales
LT growth-rate
Market Pulp Manufacturer of papergrade,
fluff and specialty pulp1-2%1-2%22%
of 2017 sales
LT growth-rate
Specialty Papers
Leading manufacturer of premium, technical and specialty packaging
papers
GDPGDP13%of 2017 sales
LT growth-rate
Three of our four businesses in growth markets
Citi Basic Materials Conference I November 28, 2018
BUSINESS EVOLUTION
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Focus on growth through targeted investments, organic and through acquisitions Focus on growth through targeted investments, organic and through acquisitions
Customers, costs and cash, execution in pulp and paper and divest non-core assetsCustomers, costs and cash, execution in pulp and paper and divest non-core assets
Repurpose assets, harvest and innovate Repurpose assets, harvest and innovate
� Maintained leadership position and market share despite secular demand declines
� Divested underperforming businesses including lumber, hardwood pulp, coated groundwood and US paper distribution
� Generated over $6 billion of operating cash flow since 2009
� Invested in major asset repurposing projects at Plymouth, Marlboro and Ashdown
� Built a $1B global hygiene business
� Leverage repurposing roadmap
� Harvest investments in pulp
� Innovate and execute in Biomaterals
Citi Basic Materials Conference I November 28, 2018
WHERE WE ARE TODAY
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NET DEBT-TO-CAP 25%
FREE CASH FLOW YIELD*
10.1%
PAPER MARGIN EXPANSION +300 basis points vs. Q2-18
OPERATING CASH FLOW$460 million in LTM
HIGHER PAPER VOLUMES up 4% YTD
HIGHER PAPER PRICES up $73 per ton vs. Q3-17
HIGHER PULP PRICES up $141 per ADMTvs. Q3-17
*As of Q3-18
Citi Basic Materials Conference I November 28, 2018
MARKET LEADING POSITION IN PAPER
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North American Uncoated Freesheet Capacity
33%
20%Other
7%
8%
10%
22%
Operating footprint
T&SCommunication PapersPulp
Espanola Windsor
Port HuronJohnsonburg
Ashdown
NekoosaRothschild
Hawesville
Marlboro
Kingsport
� 20 paper machines� 10 paper mills� 13 converting facilities� 38 distribution centers
Selected highlights
Sales breakdown, 2017
81%
13%
6%CanadaRoW
US
83%
17%
Technical & Specialty Papers
Communication Papers
Sales by region Sales by product categories
Market share (%)
Citi Basic Materials Conference I November 28, 2018
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RELIABLE AND HIGHLY CASH-GENERATING BUSINESS
Uncoated freesheet has declined, on average, 3.8% per year since 2000; however, the rate of decline has slowed over the last few years
Domtar has maintained its market share position throughout the years; top 4 players now represent 73% of all North American uncoated freesheet capacity
Domtar owns and operates some of the best and largest uncoated freesheet mills
Prices have been relatively stable since 2009; the business is expected to continue to generate a significant amount of cash
Favorable supply and demand market dynamics expected to continue over next 12-18 months
Uncoated freesheet demand is improving
Uncoated freesheet markets at inflection
point
World-class assets
Largest uncoated freesheet producer in North America
Pricing
Citi Basic Materials Conference I November 28, 2018
THE PULP GROWTH BUSINESS
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41%
33%
26%China
RoW
US
56%41%
3%
Hardwood
Softwood
Kamloops
EspanolaDryden
PlymouthAshdown
NBSK
Fluff
SBSK
Operating footprint
T&SCommunication PapersPulp
� 5 large-scale market pulp mills
� Market pulp also produced in at least 3 other locations
� 8 different grades or products
Selected highlights
Sales breakdown, 2017
Sales by region Sales by product categories
Global Market Softwood Pulp Capacity
1.8
Capacity in millions of ADMT
Fluff
Citi Basic Materials Conference I November 28, 2018
PULP POSITIONED IN ATTRACTIVE MARKETS, WITH STRONG OUTLOOK
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Fluff
� Forecasted growth of 3.8% per year through 2022
� No new major market fluff pulp projects announced
� Only 3 suppliers, with combined capacity share of 78%, with more than one mill
� US accounted for more than 87% of global supply
� China represented 36% of the global growth between 2014-2017 and 15% of total consumption
Softwood
� Forecasted growth of 1.5% per year through 2022
� No new major market softwood pulp projects announced
� 1.9 million ADMT of additional bleached softwood global demand expected by 2022
� Over 75% of demand growth expected from China
� 150 new tissue machines expected between 2017 and 2020
3%
56%
41%
Softwood
Fluff
Other Source: PPPC
Source: Domtar analysis, RISI
Citi Basic Materials Conference I November 28, 2018
MAXIMIZING THE VALUE OF OUR PULP BUSINESS
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� Domtar’s pulp business well positioned in attractive markets with a positive outlook for the next 2-3 years
� Opportunity to capitalize on growth opportunities, productivity and cost improvements
� Modernize, integrate and optimize platforms in order to drive market pulp mills towards 1st quartile cash costs
� Debottleneck, energy efficiency and several upgrades to be considered at four market pulp mills
� Projects with returns in excess of 25%
Citi Basic Materials Conference I November 28, 2018
GROWING PERSONAL CARE
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Sales breakdown, 2017
48%
48%
2%2%
Europe
RoW
US
61%29%
10%
InfantAdult
Incontinence
Sales by region Sales by product categories
OtherCanada
Operating footprint
Waco
Jesup
Greenville
DelawareSt-Louis
Toledo
Aneby
� 62 converting machines in 5 plants
� 1,900 employees
Selected highlights
Key components of our competitive advantage
Turn-key solutions to help improve our customers’ positions vs their competition
Focused R&D and innovation capabilities delivering
meaningfully distinctive products
Provide our customers with superior insight into the needs of specific consumers
Proprietary and flexible manufacturing platform to make
unique product solutions
Citi Basic Materials Conference I November 28, 2018
FAVORABLE MARKET TRENDS
Growing middle-class with higher disposable income
Growing demand for high-quality, absorbent hygiene products
Global population growth
Aging population
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Citi Basic Materials Conference I November 28, 2018
PERSONAL CARE: PATH TO PROFITABLE GROWTH
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20182018 20192019 20202020
Customer rationalizationCustomer rationalization
Waco, TX closureWaco, TX closure
Equipment relocationEquipment relocation
Productivity and supply chain efficiencies Productivity and supply chain efficiencies
Headcount reductionHeadcount reduction
Price initiativesPrice initiatives
SKU rationalizationSKU rationalization
Targeting $25-30 million of EBITDA improvementActions will reduce our cost base and strengthen our long-term competitive position
Citi Basic Materials Conference I November 28, 2018
CASH DEPLOYMENT WILL REMAIN BALANCED
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Highlights Key priorities
$1.6B
Cash flow returned to shareholders since 2011
Float repurchased since 2010
34%
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TARGETED CAPITAL INVESTMENTS in fiber- based technologies and alternate uses for our facilities
22DIVIDEND - current cash payout of $110 million per year
33 MERGERS & ACQUISITIONS with a focus on fiber-based products in growth markets
44 Opportunistic SHARE BUYBACKSDividend yield*
3.7% *As of Q3-18
Citi Basic Materials Conference I November 28, 2018
CURRENT MOMENTUM DRIVERS
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MARKETS
� Strong demand across pulp and paper business
� High operating rates
� Announced industry paper capacity closures and conversions
� Favorable import dynamics
CATALYSTS� Asset optionality
� Personal Care margin improvement plan
EARNINGS RUNWAY
� Flow-through of paper and pulp price increases
� Strong paper and pulp shipments
� Continuous improvement program
CASH GENERATION
� Strong and sustainable free cash flow
Citi Basic Materials Conference I November 28, 2018
PATH TO GROWTH: ASSET REPURPOSING
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� Feasibility study highlighted the significant potential embedded in our paper manufacturing assets
o4 large scale paper machine/mill repurposing projects
� Opportunity to build additional growth segment, while also expanding in an existing growth business
oPotential of 2.5 million tons of containerboard and/or 570,000 ADMT of market softwood and fluff pulp
� The timing of the conversions will be decided based on market and economic conditions as well as the supply requirements of paper customers
oMaximize the life of paper earnings and repurpose only when there are compelling business drivers
oTiming will be determined by profitability
Citi Basic Materials Conference I November 28, 2018
ASSET ROADMAP PROVIDES VALUE-CREATING OPTIONALITY
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ASHDOWN, ARUncoated freesheet capacity: 265,000 tons
KINGSPORT, TNUncoated freesheet capacity: 426,000 tons
MARLBORO, SCUncoated freesheet capacity: 274,000 tons
HAWESVILLE, KYUncoated freesheet capacity: 596,000 tons
~ 400,000 tons of kraftliner board
~ 75,000 ADMT of fluff pulp11
~ 255,000 ADMT of fluff & SBSK pulp
~ 600,000 tons of recycled linerboard
~ 600,000 tons of kraftliner board
~ 315,000 ADMT of fluff pulp
~ 580,000 tons of kraftliner board
~ 320,000 tons of recycled medium
Option
Converted facilities will be competitive and well located to serve domestic and export markets
22
Option
11
Option
11
Option
22
Option
11
Option
Citi Basic Materials Conference I November 28, 2018
GROWTH STRATEGY
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A FIBER-BASED COMPANY THAT IS
DELIVERING VALUE
o Strong cash engine with favorable market dynamics
o Growth strategy capable of generating attractive long-term returns
o A clear and actionable asset repurposing roadmap that positions our assets for its most profitable, next use
o Returned $1.6 billion or 66% of FCF to shareholders since 2011
o Divested non-performing businesses