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March 2014
Global Reach, Local Roots
By Barbara Fagan

     It’s not surprising that the roots of paper giant Domtar Corporation link back to trees—lumber, actually, and a special process developed in 1848 in England to protect lumber from decay. The process proved useful to many industries at the time, but especially to railroads that needed to protect miles of wooden railroad ties.

     The company grew on both sides of the Atlantic and in the wake of the outbreak of World War I in 1914, the company, then known as Dominion Tar & Chemical Co., Ltd., decided to move their head office to Montreal, Quebec.

     By the mid-1900s, the company had become one of Canada’s largest, engaging in a wide range of industries including consumer products, chemicals, newsprint, containerboard, packaging, construction materials and kraft and fine papers. To reflect its new business diversity, the company officially became Domtar in 1965.

     As years progressed Domtar divested its other interests to focus on paper. Acquisitions of Ris Paper Co., Inc. and four Georgia-Pacific paper mills, as well as a merger with the fine paper business of Weyerhauser, led to Domtar Corporation’s rise as a leader in the paper industry.

     Today, as a U.S. domiciled company with sales in 2013 of $5.39 billion, Domtar trades on the New York and Toronto stock exchanges under ticker symbol UFS and is the largest integrated manufacturer and marketer in North America, and third largest worldwide of uncoated free sheet paper—the type used in office and business printing for copiers and computer printers, business papers such as envelopes and bills, and writing stationery—with recognized registered brands such as Cougar, Lynx, Husky, First Choice and EarthChoice.

     With a selling capacity of 1.6 million metric tons annually, Domtar is also a leading global producer of papergrade, fluff and specialty pulp and a growing contender in the personal care products industry.

     The company employs roughly 10,000 in its global network including a head office in Montreal, Operations Center in Fort Mill, S.C., and 13 paper and pulp mills throughout the U.S. and Canada.

     But while paper manufacturing has been an established and stable business for centuries, and paper has been a staple in homes and offices for decades, times are changing. Emails have replaced letters and memos, files are now maintained in the digital cloud, and magazine and newspaper content is instantly available with a tap of your mobile device.

     So how does a paper manufacturing giant handle the increasingly “paperlessness” of the new digital age? Answering that question is paramount to Domtar’s President and Chief Executive Officer John D. Williams.

     “In the last six to seven years, we’ve lost about 33 percent of our commodity paper business,” Williams explains. “We’ve maintained our market share, but that part of the business is gone and the volume will continue to gradually decline causing a gradual loss of earnings in that sector. Our job is to find other revenue streams and to position the company so that it creates sustainable value for our customers and shareholders.”

     It’s a large job but Williams has decades of industry expertise to his credit.

     Prior to joining Domtar in 2009, Williams was president of SCA Packaging Europe and has 30 years experience in both consumer products and the packaging industries. He’s also received industry recognition. In 2010, he was named North American CEO of the Year by RISI (a leading information provider for the global forest products industry) and in the same year, Pulp and Paper International recognized him as Global CEO of the Year. PaperAge magazine named Williams as “Executive Papermaker of the Year” for 2012.

     Williams, who works out of the company’s 400-person Fort Mill Operations Center, says that part of the strategy to replace lost business is building out into other businesses.

 

Building Out

     Personal care products such as baby diapers, feminine hygiene and adult incontinence products which use fluff pulp—a material the company already produces—seem a logical expansion.

     In a little over two years Domtar has purchased five companies in the personal care products industry: Attends in both Europe and the U.S.; EAM, which makes absorbent cores used in a range of personal care products, and AHP, the largest manufacturer of private label baby diapers in the U.S. Domtar’s latest acquisition, Indas, is the market leader in the incontinence category in Spain.

     “In personal care, we like the Americas and Europe,” says Williams. “The demographics for growth in those markets are pretty dramatic so when it comes time for acquisitions and putting assets together, you’ll see us focused in those geographies.”

     Williams states the acquisitions will continue. “In order to be a serious player you need to put in place a global product platform and develop those products so you can launch them in the key geographies.

     “We need critical mass. It’s not enough to be a group of little businesses. You have to leverage what you own to get synergies from them. We want to build $300 to $500 million of EBITDA from growth businesses by 2017. That’s our target. We’re making these acquisitions specifically to build out to that $300 to $500 million of EBITDA.”

     Growth of the company’s personal care business is all good news for North Carolina. Williams estimates Domtar has invested over a half billion dollars in the Carolinas since 2010, and that their Attends facility in Greenville, N.C., is expanding to accommodate growth in that business. Domtar has also located its global headquarters for its personal care business in the Raleigh/Durham area, which could result in further benefits for the local economy as the company increases their market share in that industry.

     But Domtar hasn’t limited their acquisitions to just personal care businesses. In 2013, the company purchased the U.S. and Canadian paper and print media products business of Xerox.

     Adding on to their paper business in a declining market seems counterintuitive but Williams explains it as an opportunity. “Xerox has an amazing brand loyalty. It’s remarkable,” he says. “We think there’s an ability to focus on the brand and manage and build it. In a declining market, we believe there’s value in branding.

     “In our paper business, we’re always looking for new applications. We make the paper for point of sale machines and cash registers that people use every day. In our technical and specialty paper, we’re always looking to develop new grades.”

     New applications also apply to the company’s cadre of capital-intensive paper mills. Domtar is looking to refit or repurpose some existing mills to better align with its new business model. Their mill in Plymouth, N.C., is a good example of a successful transition.

 

Repurposing and Sustainability

     “The large mill we have in Plymouth used to make paper,” Williams explains. “It no longer makes paper. It now makes the soft pulp—the type of pulp that goes into baby diapers and adult incontinence and feminine hygiene products. We knew we had the skill and we already had product in the market so we spent $85 million to repurpose that mill. That’s a way we’ve forward integrated an existing facility into this new business we’re building.”

     Domtar is also finding new applications for an old product they’ve used internally for years.

     “Wood is two things—cellulose and lignin,” Williams explains. “Historically, in papermaking you want the cellulose but not the lignin, so we’ve been burning lignin in recovery boilers and generating power for the paper mills. But lignin has other applications. It can be processed to be a binding agent in a whole range of applications from asphalt to wood pellets used in power stations, or because it’s natural, even as a binder in animal feed.

     “We trademarked it BioChoice lignin—that’s our brand name. We haven’t been producing it for very long, probably seven or eight months. Right now, it’s not transformational for the company earnings, but it’s enabling us to develop new markets and we’re excited about that. The product has recently earned recognition from the U.S. Department of Agriculture as a 100 percent organic, BioPreferred product.

     “Clearly, finding new applications for renewable resources—what we refer to as bio-refining—is an attractive proposition in a world of limited natural resources.”

     Protecting natural resources has been a core company value for many years. An early adopter of sustainability principles, Domtar believes so strongly in the practice that it brands itself “The Sustainable Paper Company.”

     The company was also first in the industry to embrace certification by the Forest Stewardship Council (FSC), a third party certification for managing and harvesting forests sustainably, and it also partners with the Rainforest Alliance and the World Wildlife Fund, even co-branding with them on FSC certified paper sold under the company’s EarthChoice brand.

     “We sell a lot of FSC-certified product both in printing papers and cut size papers, the kind you find in a Staples or Office Depot,” says Williams. “All of us as consumers these days want to know how our beef is processed and where our eggs come from. Quite rightly, we care about these things.

     “It’s meaningful to a lot of people that the paper they use at home or in their office is sustainably harvested. Many companies, especially large institutions, want to make sure that they’re buying paper that was sustainably produced. It matters to consumers and to business buying.

     “But it’s not just a marketing issue; it’s also a behavioral issue. We have to make sure we behave in a sustainable manner.”

 

Meaningful Strategies

     To assist in that goal, Domtar develops long-term sustainability strategies and conducts regular evaluations of its sustainability performance. Goals from a recent evaluation include: working toward procuring 100 percent of their wood fiber from FSC-certified forests, setting greenhouse gas reduction targets, reducing water and waste in their mills and seeking carbon efficiency opportunities in their supply chain.

     “But sustainability isn’t just about the environment,” Williams insists. “It’s also about how you recruit people and how you manage your strategy to make sure that an enterprise which has already had a good long life continues to have a good long life.

     “We have three core values: agility, caring and innovation. Part of our caring value is involvement in the community.”

     Companywide, Domtar partners with First Book, a nonprofit that provides new books to children in need across North America, some 100,000 last year alone. The company’s EarthChoice Ambassador program also encourages employees to get involved in their communities.

     Locally, employees from their Fort Mill Operations Center joined with the Student Conservation Association on a restoration project at Andrew Jackson State Park. And the company’s annual charity golf event raises money for local causes. Last year’s outing raised $150,000 for A Child’s Place, which helps homeless children in Mecklenburg County. Previous events benefitted Classroom Central, a nonprofit, providing students with school supplies. Employees also donated time to build hiking trails in the nearby Ann Spring Close Greenway.

     Williams, who sits on the Palisades Episcopal School Board and is president of the Montreal Chamber Orchestra, believes that in addition to giving money to local organizations, it’s also “very important to really get involved.”

     The Domtar strategy appears to be working. In an earnings conference call in early February, the company reported that its net earnings had more than doubled during the fourth quarter of 2013 and quarterly sales were nearly $1.4 billion—up 2.4 percent—as compared to the same period in 2012.

     Of the period, Williams commented, “The strong fourth quarter capped off a year of achievements for Domtar. We announced several strategic initiatives and continued to execute on our commitment to transition our earnings profile.

     “I can say with confidence that the Domtar growth story is set firmly in its path, the foundation of which will be a high-performing pulp and paper business and fast-growing personal care business.

     “In summary, we had a milestone quarter for Domtar in our quest to become a stronger business that creates sustainable value for our customers and our shareholders.”

 

Barbara Fagan is a Greater Charlotte Biz freelance writer.
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