DomtarBMI presentation May 5, 2009

Doc Maiorino V.P. Sales Publication Paper

Uncoated Freesheet

3Source: PPPC

UFS Industry Statistics

• UFS demand was down -16.8% Q1 2009 vs. Q1 2008

• UFS mill inventory was at 42 days of supply at the end of March, up 5 days from a year ago

• UFS imports were down by -23% Q1 2009 vs. Q1 2008

• UFS exports were down -20.5% Q1 2009 vs. Q1 2008

• UFS operating rates are at 88% Q1 2009

4

8

9

10

11

12

13

14

15

16

17

95 96 97 98 99 0 1 2 3 4 5 6 7 8 9 10

Mill

ion

of s

hort

tons

UFS demand has declined 3.9 million tons since 1999

• The latest forecast from PPPC is a decline of -8.5% in 2009 and a drop of -1.5% in 2010

• The RISI forecast for 2009 shows a decline of -7.8% and flat in 2010

Source: PPPC

N.A. Demand for UFS has declined since 1999

5

100,000

120,000

140,000

160,000

180,000

200,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

07 shipments 08 shipments 09 shipments

• Offset shipments dropped 11.1% in 2008 vs. 2007 and are down 30% in Q1 09 vs Q1 08

Note: Offset shipments consist of offset & reply card

Source: PPPC

N.A. Offset Industry Statistics

6

65,000

75,000

85,000

95,000

105,000

115,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

07 shipments 08 shipments 09 shipments

• Opaque shipments were down 8.6% in 2008 vs. 2007

Source: PPPC

N.A. Opaque Industry Statistics

7

Pieces Weight

Service Category % chg Q4 ‘08 vs. ‘07 % chg Q4 ’08 vs. ’07

First Class Mail -7.2% -6.0%

Periodicals -3.5% -12.6%

Standard Mail -5.5% -8.7%

Total All Mail -9.3% -11.7%

• In the US, 33% of all printing and writing paper flows through the postal service

• Average weight per piece declined 2.7% quarter over quarter 2008

Source: USPS

Quarterly US Postal Service Mail Volumes

8

30,000

40,000

50,000

60,000

Jan 0

7

Mar 0

7

May 0

7

Jul 0

7

Sep. 0

7

Nov. 0

7

Jan. 0

8

Mar. 0

8

May 0

8

Jul. 0

8

Sept. 0

8

Nov. 0

8

Jan. 0

9

Mar. 0

9

Imports Exports

• Imports and exports of UFS are very close to being in balance at approximately 5% per year

• Portucel will start production on a new UFS machine(550,000 tons/yr) in August 2009, it is not clear how much of this will be sold into the North American market

Source: PPPC

N.A. UFS Imports & Exports

9

IP 16%

Boise 10%

GP 7%Glatfelter 5%

Appleton 2%

Evergreen 2%

Wausau 2%

Neenah 2%

Finch 2%

All Others 9%

Domtar 33%

Source: RISI 2008

N.A. UFS Producers (capacity in ‘000 tons)

10

2007 Date Company Location

-350 Feb 2007 IP Pensacola, FL

-250 Feb 2007 Boise Wallula, WA

-70 June 2007 Dirigo Gilman, VT

-125 June 2007 Domtar Woodland, ME

-120 July 2007 GP Wauna, OR

-20 Oct 2007 Domtar Hull, QC

-35 Oct 2007 Fraser Gorham, NH

-150 Dec 2007 Domtar Dryden, ON

Total: -1120

• As demand for UFS has fallen paper companies have permanently closed mills to balance capacity with demand and maintain a more stable pricing environment

Source: RISI & PPPC

2008 Date Company Location

-100 Jan 2008 Wausau Groveton, NH

-35 Feb 2008 Neenah Urbana, OH

-35 April 2008 Fraser Gorham, NH

-130 June 2008 Domtar Port Ed, WI

-250 Sept 2008 IP Bastrop, LA

-160 Nov 2008 Domtar Dryden, ON

-150 Nov 2008 IP Franklin, VA

Total: -860

2009 Date Company Location

-200 Jan 2009 Boise St. Helens, OR

-295 Jan 2009 Domtar Plymouth, NC

List of UFS Mill Closures in 2008 & 2009

11Source: RISI

North American UFS Capacity Reductions('000 tons)

-200400600800

1,0001,2001,400

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009thruFeb

• Since 2007 over 2.4 million tons of UFS capacity have been removed from the market (19% of annual UFS demand)

• Two closures have been announced through February 2009

Magnitude of UFS Capacity Closures over the past 9 years

12Source: PPPC

97%

88%93%

74%

96%

75%

95%

69%

0%10%20%30%40%50%60%70%80%90%

100%

Ope

ratin

g ra

tes

%

Unc. Freesheet Unc. Mechanical CoatedWoodfree

CoatedMechanical

Q1 2008 Q1 2009

• The drop in operating rates (capacity versus shipments) for UFS are not as severe as the other grades

Printing & Writing N.A. Operating Rates 2008 vs. 2009

13Source: PPPC

84%

85%

86%

87%

88%

89%

90%

91%

92%

93%

94%

2003 2004 2005 2006 2007 2008 2009 2010

PPPC forecast UFS Operating Rates to decrease slightly over next 2 years as demand declines

UFS Operating Rates

14Source: RISI

0%

10%

20%

30%

40%

50%

60%

70%

80%

Unc. Freesheet Unc. Mechanical Ctd. Freesheet Ctd. Mechanical

Europe North America

• In Europe the top 3 producers of UFS have 30% of the domestic market while in North America the top 3 have almost 70% of their domestic market

• Further consolidation of European companies may be required to maintain a healthy supply and demand relationship in UFS

Top Three Producers Market Share Europe vs. North American

15

Conclusions

• Demand for UFS in North America continues to decline– Supply balanced by mill closures allowing for relatively steady prices– Mill and merchant inventories for UFS have decline slightly

• Long-term survival will require a strong balance sheet today– Timing of economic recovery?– Will printed media rebound to pre-recession levels?

• Future consolidation/closures may be required as new demand levels are established in our recovering economy.

Uncoated Mechanical

17

8

10

12

14

16

18

20

22

95 96 97 98 99 0 1 2 3 4 5 6 7 8 9 10 11

Mill

ions

of s

hort

tons

Demand has declined 5.1 million tons since 2000

• The latest forecast from PPPC is a decline of -15% in 2009

Source: PPPC

Total N.A. Demand for UGW+Newsprint

18

0

1

2

3

4

5

6

7

95 96 97 98 99 0 1 2 3 4 5 6 7 8 9 10 11

Mill

ions

of s

hort

tons

• The latest forecast from PPPC is a decline of -11% in 2009

Source: PPPC

Total N.A. Demand for UGW

19

5

6

7

8

9

10

11

12

13

14

15

95 96 97 98 99 0 1 2 3 4 5 6 7 8 9 10 11

Milli

ons

of s

hort

tons

Newsprint Demand has declined 5.8 million tons (-39%) since 2000

• The latest forecast from PPPC is a decline of -18% in 2009

Source: PPPC

Total N.A. Demand for Newsprint

20

50,000

70,000

90,000

110,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

07 shipments 08 shipments 09 shipments

• Super-bright shipments increased 9.6% in 2008 vs. 2007 and are down 22.6% in Q1 09 vs Q1 08

Note: Shipments include exports

Source: PPPC

N.A. Super-Bright Industry Shipments

21

50,000

70,000

90,000

110,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

07 shipments 08 shipments 09 shipments

• High-bright shipments increased 29.7% in 2008 vs. 2007 and are down 14.2% in Q1 09 vs Q1 08

Note: Shipments include exports

Source: PPPC

N.A. High-Bright Industry Shipments

22

USA Book Printers Choosing Super-Bights More Often for their Uncoated Needs

200

300

400

500

600

700

800

900

0 1 2 3 4 5 6 7 8 9

An

nu

ali

ze

d r

ate

by

qu

art

er,

th

ou

sa

nd

to

ns

Purchases of paper for use in books printed in the USA

Uncoated Freesheet

Uncoated Mechanical

23

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

07 shipments 08 shipments 09 shipments

• Bulking book shipments dropped 31.5% in 2008 vs. 2007 and are down 11.8% in Q1 09 vs Q1 08

Note: Shipments include exports

Source: PPPC

N.A. Bulky Book Industry Shipments

24

2007 Date Company Location

-160 Feb 2007 Abitibi-Consolidated Fort William, ON

-100 June 2007 Bowater Dolbeau, QC

-70 Sept 2007 Kruger Wayagamack, QC

-80 Nov 2007 Kruger Trois-Rivieres, QC

Total: -410

* Idled capacity not permanent closures

Source: RISI & PPPC

2008 Date Company Location

-280 Q1 2008 AbititbiBowater Groveton, NH

-30 Q1 2008 AbititbiBowater Urbana, OH

-180 Q1 2008 AbititbiBowater Gorham, NH

-180 July 2008 Katahdin Paper Port Ed, WI*

-120 Dec 2008 AbititbiBowater Calhoun, TN*

Total: -790

List of UGW Mill Closures

Impact on the Book industry

26

• In 2008 the Book industry used 1,76Million tons of Paper from all sources (49% coated and 51% Uncoated)

• It is projected that the demand for paper used in books will decrease by 2% in 2009

Source: GAPTRAC Q1 2009 report

Book Industry Paper Demand

Demand by Paper Grade ('000 tons)

Coated Mechanical

14%

Coated Bristol

3%

Uncoated Mechanical

24%

Uncoated Freesheet

27%

Coated Freesheet

32%

27Source: GAPTRAC – Poyry Consulting

Publishers Unit Sales (Millions of Books)

• Based on GAPTRAC projections the book industry remains relatively stable, with unit declines of less than 1% over 4 years

28Source: GAPTRAC – Poyry Consulting

Publishers Paper Demand

29

Paper Usage in Books Printed in the USA

1

1.2

1.4

1.6

1.8

2

2.2

0 1 2 3 4 5 6 7 8 9

Annual Rate by Quarter, Million Tons

-35%

30

Book Industry – Growth Opportunities

• Extend sales channels beyond bookstores, e.g., mass retailers, Starbucks, Costco, WM Sonoma, etc.

• More specialization and customization, new genres and special interest topics, new titles published increasing more than 3%

• Digital printing for short runs and reprints of out-of-print titles and one-off books printed in store or ordered on-line

• Global markets: rapidly developing economies in India, China and rest of Asia seeking books about science, medicine, business, education, etc.

• People changing careers and taking courses

31

Book Industry – Threats to Growth

• Digital downloads and migration to digital editions from printed books, Kindle and Sony Reader e-books

• Competing entertainment and media alternatives to reading – Internet, blogs, movies, i-pods, podcasts, video games, etc.

• Declining number of young readers• Dwindling percentage of book-buying households

and fewer people reading books for enjoyment• Content piracy in offshore countries and copyright

infringements, especially by Web search sites• Fewer blockbuster best-sellers

32

Impacts on Paper Industry

• Green products, FSC, recycled pre consumer-post consumer 10,20,30. what’s next?

• Product substitution, coated to uncoated GWD to UFS.

• Bs. Wt. reduction, bulking capabilities.• Make it better make it cheaper and make it in smaller

lots.• Supply Chain efficiencies (Collaboration)• Cash flow management, how do we all do more with

less.

33

Impact

• All that being said we are determined to survive our current challenges and continue to innovate and meet the needs of the Book Industry and of the Publishing community for many years to come.