MRO Magazine

Domtar to reduce size of operations in Quebec, Ontario and B.C.

Montreal, QC -- Domtar Inc will close some of its paper mills and sawmills, sell a paper mill and undertake other c...


Human Resources

December 2, 2005
By MRO Magazine

Montreal, QC — Domtar Inc will close some of its paper mills and sawmills, sell a paper mill and undertake other cost-cutting initiatives aimed at returning the company to profitability, it has announced.

Key measures include the permanent closure of its Cornwall, Ont., paper mill; permanent closure of PM No. 10 and PM No. 11 of its Ottawa, Ont., mill; the decision to sell its Vancouver, B.C., mill; and closure of its sawmills at Grand Remous and Malartic, Que., with the intention of creating a value-added project using the existing infrastructures.

In a separate announcement last week, Domtar said it shut down its Lebel-sur-Quvillon pulp mill at 5:00 p.m. on Nov. 24, 2005, due to unfavourable economic factors. Of this closure,Domtar said it was taking measures to mitigate the negative impacts of a combination of economic factors: downward pressure on prices, growing fibre supply costs, rising energy and transportation costs, the strengthening of the Canadian dollar and labour costs that exceed those of competitors. A company spokesman added that the pulp mill at Lebel-sur-Quvillon would be up and running as soon as economic factors allow the mill to operate profitably. The Lebel-sur-Quvillon pulp mill employed 425 workers and produced 300,000 tonnes of kraft pulp annually

In its Nov. 30, 2005, announcement, Domtar introduced an additional, more significant cost reduction program, as follows:

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– Reduce selling, general and administrative (SG&A) expenses by eliminating approximately 100 additional corporate and divisional positions, as well as other SG&A expenses,

– Implement further cost reductions at the mill level by eliminating approximately 200 additional operational positions, and

– Consolidate North American administrative offices in Montreal and Cincinnati.

“The strengthening of the Canadian dollar has pushed some of our Canadian mills to negative cash flow generation, and we must focus on our most efficient mills in order to return to profitability in the foreseeable future,” said Richard Garneau, executive vice-president, operations.

Garneau is new to this post, having been appointed on Oct. 27, 2005. He has more than 30 years experience in the paper and forest products industry, including positions at Donohue Inc., St-Laurent Paperboard Inc., Norampac Inc. and, since 2002, as senior vice-president, forest products at Domtar.

“We are sad to announce that this plan will translate into a permanent workforce reduction of approximately 1,800 positions across the company,” he said. This figure includes the reorganization announced in December 2004 at the Cornwall mill.

“We believe that these actions, our previously announced dividend cut, and other measures to reinforce our support to customers, should improve our cash flow by approximately $160 million, and constitute an important step toward improving our margins,” Garneau added.

These measures will result in pre-tax restructuring costs of approximately $505 million, including fixed asset write-offs of approximately $313 million.

“Mill closures are very difficult decisions to make, since they impact our employees, their families, and the communities where we operate,” said Raymond Royer, president and chief executive officer.

“The measures that we announced today are necessary actions that will help the corporation return to profitability. Unfortunately, sustained actions and dedicated efforts by our employees, as well as capital investments by the company, were not sufficient to guarantee the long-term viability of these operations within Domtar.”

“These are trying times for companies with a large manufacturing base in Canada whose products are sold in U.S. dollars,” Royer had said earlier this year. “Although Domtar has grown its U.S. presence to approximately 50% of its asset base over the last five years, the company has nonetheless suffered from the sharp increase in the value of the Canadian dollar, leading it to post a loss for 2004. Domtar has also faced unprecedented cost increases for purchased wood and freight, as well as more duties on softwood lumber exports to the U.S.”

On announcing the latest measures Nov. 30, Royer added that “Some of our facilities face significant challenges posed by high cost structures and the ever-strengthening Canadian dollar. Our market pulp operations will remain under particular scrutiny. We are calling for the co-operation of employees, union representatives, community leaders and government officials to help us improve our competitive position.

“Domtar is determined to emerge from this difficult period a stronger organization. In keeping with the company’s corporate values, all employees impacted by today’s announcement will receive financial assistance and be offered access to outplacement services,” he added.

The Cornwall mill will be permanently shut down, effective March 31, 2006. This decision will result in the elimination of approximately 910 positions, including the 390 positions already affected by the indefinite shutdown of the pulp mill, PM No. 6, and one sheeter announced in December 2004. Total annual capacity of 265,000 tons of uncoated and coated printing grades on three paper machines as well as 160,000 tons of pulp will be permanently taken off the market.

The company will also proceed with the permanent closure of PM No. 10 and PM No. 11 at its non-integrated Ottawa-Hull complex, effective March 31, 2006. Consequently, approximately 185 positions will be eliminated and 65,000 tons of paper capacity will be removed from the market.

Domtar also announced its intention to sell its Vancouver coated paper mill, and is currently seeking a buyer. This mill employs approximately 285 workers and produces 120,000 tons of coated paper. Mill operations will continue during the sale process.

Domtar will close its sawmills at Grand Remous and Malartic effective February 28, 2006 due to the softwood fibre reduction and high fibre costs in Quebec. There are approximately 200 employees working at these facilities.

Subject to government approval, the wood fibre allocation for Grand Remous and Malartic will be transferred to Domtar’s other Quebec sawmills. This will ensure more efficient operations by going to three shifts, and will offer about 80 employees from Grand Remous and Malartic the possibility of transferring to new positions created by the addition of these extra shifts.

Domtar is also working with a partner in collaboration with the government on a value-added project that would create over 300 new positions using the Grand Remous and Malartic infrastructures, therefore mitigating most of the job losses.

In addition to these measures, the company will also improve profitability by implementing supply chain initiatives that reduce operational costs and improve customer satisfaction. These initiatives will increase the efficiency of the converting and distribution centres and the cost effectiveness of transportation for just-in-time deliveries.

Furthermore, the company will be moving some of its paper grades to more profitable papermaking facilities and machines within its network.