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Domtar 2016 Annual Report

Domtar’s journey to sustainable growth remains firmly on track and our actions in 2016 will further advance our progress. Our manufacturing efficiency is improving each year and we continue to deliver innovation, quality and excellent service to our customers. As a result, we are generating strong cash flow to support the execution of our growth strategy while also returning capital to our shareholders. Strong sales growth of personal care products was a highlight of 2016. In uncoated freesheet, we generated solid margins and maintained our leadership position in North America. The successful start-up of the world’s most modern fluff pulp line at our Ashdown mill, a major capital project, marked the second half of the year. As well, process and other improvements across Domtar delivered meaningful efficiency gains and cost savings. With these achievements in both of our divisions, we built momentum for our growth strategy for years to come. PERSONAL CARE DIVISION Our personal care business made notable progress in 2016 in both adult incontinence and infant diapers, with sales increasing 6%. New customer wins through our partner-brand model resulted in significantly higher volumes in North America and Europe, supported by operational cost savings from recent investments in our manufacturing platform. We also completed a number of capital projects including strategic investments in capacity to keep pace with customer demand in both our adult incontinence and infant diaper businesses. 6 DOMTAR 2016 ANNUAL REPORT We expect to build on our sales momentum in 2017 by winning additional volume through our partner-brand model and new marketing initiatives in the North American institutional healthcare channel. Growth is anticipated to be driven by additional production capacity for our retail brands in Europe and expansion of direct-to-consumer sales in the U.S., a new channel established through the acquisition of HDIS in the fourth quarter. PULP AND PAPER DIVISION In our pulp and paper businesses, our relentless focus on execution and operational excellence continued to unlock value from our assets. We maintained margins in our core paper business through lower production costs and price increases in some paper grades. Our continuous improvement and reliability programs generated savings across our mill network, and we closely matched production volumes with our customer demand. We took market downtime and permanently removed 364,000 short tons of paper capacity early in the year with the closing of a paper machine at our Ashdown mill. Our pulp business benefitted from strong demand and productivity throughout the year. In late 2016, we began the qualification process at our new fluff line in Ashdown, with very good initial results. This line will add up to 516,000 air dry metric tons of high-quality pulp capacity to our system with the capability of switching between fluff pulp and softwood bales depending on market demand. This positions Domtar as a significant player in this growing global market. MESSAGE TO SHAREHOLDERS WORKING TO MAKE DOMTAR STRONGER


Domtar 2016 Annual Report
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