Domtar looking to get closer to consumers with incontinence products

MONTREAL – Domtar could expand its personal care business by adding more consumer incontinence products as part of a plan to transform from a traditional pulp and paper maker to a fibre innovator, the company’s CEO said Wednesday.

Chief executive John Williams told shareholders that the strategy of transforming itself will be “an evolution and not a revolution.”

The company’s goal is to eventually bring in US$300 million to US$500 million of pre-tax operating earnings (EBITDA) from alternative segments, including personal care products.

The Montreal-based company acquired adult diaper producer Attends HealthCare last year and added the European business early in 2012.

The deal cost US$551 million and added 850 employees on both sides of the Atlantic, or about 10 per cent of Domtar’s global workforce.

More than 60 per cent of Attends business is to institutional customers, rather than consumer buyers of adult incontinence products, feminine hygiene or baby diapers.

“If we can find other things that have compelling value in that kind of area getting closer to the consumer we may well do that,” Williams said after Domtar’s annual meeting.

Aging populations should drive strong demand in the US$8 billion a year global market that is growing at five to six per cent annually.

Domtar (TSX:UFS) has said it hopes to double the Attends business over five years.

The opening of a converting facility in China is designed to expose it to the world’s most populated country and could lead to new opportunities for its Attends business.

“Let’s find out what it’s like to do business there and then are there opportunities for example for our Attends business on the ground, which is a much lower capital investment business,” Williams told reporters.

The Chinese operation is small, employing some 50 workers and costing about $40 million after working capital.

Proceeds will initially be minimal as it studies the market over about two years.

Domtar has pursued several initiatives to offset the three to four per cent annual decline in paper use. These include investing in the world’s first nanocrystalline cellulose demonstration facility in Windsor, Que., purchasing Attends to increase the use of fluff pulp and investing in its Plymouth, N.C., mill to extract lignin from black liquor currently burned in its recovery boilers.

Domtar also signed a long-term, $3-billion supply deal with specialty paper producer Appleton Papers that will direct paper to a growing market.

Domtar announced Wednesday that it is increasing its quarterly dividend by 29 per cent as it continues to share its success with investors.

“(It’s) further proof or our confidence in the future prospects of Domtar and our commitment to return a majority of free cash flow to investors,” Williams said.

The 10-cent increase to 45 cents US per common share would raise the yield on the company’s stock to about 2.1 per cent from 1.6 per cent based on Tuesday’s closing price of C$86.05 per share on the Toronto Stock Exchange.

The stock was up 27 cents at $86.45 in midday trading Wednesday.

Domtar said it will spend about US$65 million a year on dividends.

Over the past two years, the company has increased its dividend by about 80 per cent and committed to repurchase $1 billion of its shares.

It repurchased about 14 per cent of its stock last year and spent US$543 million to return 73 per cent of free cash to shareholders.

Dividend payment will be made July 16 to stockholders of record at the close of business June 15.

Paul Quinn of RBC Capital Markets said the dividend increase was expected by the market.

Domtar earned US$1.1 billion of pre-tax earnings and US$740 million of free cash last year.

Domtar manufactures and distributes a wide variety of fibre-based products including communication papers, specialty and packaging papers and adult incontinence products.