Pascal Bossé - Director of Investor Relations John D. Williams - President and Chief Executive Officer Daniel Buron - Senior Vice-President and Chief Financial Officer Richard L.

Thomas - Senior Vice-President, Sales Michael Edwards - Group Senior Vice-President, Pulp and Paper Manufacturing

George Staphos - Bank of America-Merrill Lynch Richard Skidmore - Goldman Sachs Stephen Atkinson - BMO Capital Markets Christopher Chun - Deutsche Bank Steven Chercover - D. A.

Davidson & Co. Claudia Shank Hueston - J.P.

Morgan

Alright, thank you. Thank you, Michelle.

Good morning and welcome to our fourth quarter 2008 earnings call. Joining me today are John Williams, President and CEO; Daniel Buron, CFO; Dick Thomas, Senior VP of Sales and Mike Edwards, Senior VP, Pulp and Paper Manufacturing.

Management will begin with formal remarks, after which we will take questions. During the call, references will be made to supporting slide and you can find this presentation in the Investor Section of the website.

As a reminder, all statements during the call that are not based on historical facts are forward-looking statements subject to number of risks and uncertainties. I invite you to review Domtar's filings with the Securities Commissions for a listing of those.

And finally, certain non-U.S. GAAP financial measures will be presented and discussed and you can find the reconciliation to the closest GAAP measures in the appendix of this morning's release and on our website.

So with that, I'll turn the call over to our CEO. John?

Thank you Pascal and good morning everyone. This is my first earnings conference call as President and CEO of Domtar and I look forward to sharing my initial thoughts with you this morning.

I have just completed little over a month in the role, but my due-diligence process began in the fall when I spent time reading about our organization, our business, our asset base and the market dynamics. And I think we can all realize these of difficult but dynamic times in the industry.

However, my first impressions are that we've some real opportunities and some great building blocks we can leverage to overcome the economic crises and lead Domtar to the next level of success. This morning, I plan to share some of these early observations and our priorities.

But first I think, the order of the day is to discuss our fourth quarter results and for that, I will now turn the call over to Daniel.

Thank you, John and good morning everyone. Starting with the highlights on slide four; Domtar reported to be a net loss of $1.31 per diluted share for the fourth quarter compared to net earnings of $0.08 per diluted share in Q3, including the result for impairment charges totaling $591 million.

Adjusting for impairment charges and other items, are less with $0.04 per share in the fourth quarter compared to earnings of $0.10 per share in the third quarter. Our results in the fourth quarter suffer from a poor market conditions, especially in our Paper segments where a combined drop in paper volumes and within pulp markets resulted in increased cost of machine down payment slowdown.

In the quarter, we took a total of 197,000 tonnes of paper production procurement and 100,000 metric tonnes of pulp productions procurements. To balance our system and reduce downtime costs, we've announced this morning the closure of paper machine at our Plymouth, North Carolina mill removing about 300,000 tonnes of paper-making capacity.

This closure is an addition of our closure or our Dryden driving paper machine in late November, 2008. Turning to a sequential comparison of earnings on slide five; sales were down $160 million compared to the third quarter, mostly which a lower volume in paper and a decline in prices for pulp.

Cost of goods sold, reduced by $39 million due to lower paper and pulp production, favorable foreign exchange and lower energy prices. Depreciation and amortization decreased $9 million mostly from foreign exchange variation.

In the quarter, we took an impairment charge of $387 million to property, plant and equipment mostly related to driving on Ontario pulp and paper complex. This impairment is the result of the decision announced in December to permanently close the paper machine at this location.

We also finalized our annual goodwill debt and wrote down the entire goodwill related to our paper business. In the quarter, other operating income was $8 million mostly related to foreign exchange gains on working capital items.

And finally interest expense was $13 million lower and that includes a $12 million gain on some debt buyback that I will cover in a minute. Turning to our earnings reconciliation; we report a net loss of $676 million or $1.31 per share.

This includes the following after-tax items: impairment of goodwill of $321 million, impairment of fixed assets and intangible assets of $270 million, charge of $52 million for valuation allowance on Canadian deferred income tax assets, closure and restructuring costs of $18 million, gain on debt repurchase of $8 million and the final leg of costs related to synergy and integration amounting to $3 million. So excluding these items, we had a loss of $20 million or $0.04 per share.

Cash flow statement on slide seven. Cash flow from operating activities before changes in assets and liabilities amounted to $564 million in 2008.

Investment in working capital in the year were mostly for pulp inventories, higher prices for purchase material as well as lower payables due to weaker business environment and reduce production towards the year end. In 2008 we also made contribution to our pension funds in excess of expense of $141 million, of which $96 million were an early contribution made in Q4 that will reduce future funding requirements.

Capital expenditures amounted to $163 million in the year or 35% of the earnings. Finally, there were no significant changes in drawing under revolving credit facility, but we repurchased $60 million of the 2011 maturity and paid down some term loans during 2008.

Now, turning to the waterfall on slide eight; when compared to the third quarter, EBITDA was reduced by lower prices, mostly for pulp and wood products of $56 million. Input costs were favorable $16 million mostly due to energy and freights.

Our other benefits were a $23 million benefit net of hedges from the stronger U.S. dollar against the Canadian dollar, other costs of $3 million and lower maintenance cost of $1 million.

These factors were more than offset by lower shipments for paper and for wood and our usage from material, partially due to seasonality. And the costs related to downtime that affect to both volumes and energy usage for a total of $57 million.

Now, our Paper segment review. Sales declines 9% from the third quarter to $1.2 billion; operating income before items was $29 million in the fourth quarter on the D&A charge of $104 million.

EBITDA before items was $133 compared to $242 million in Q3. The sequential decline was due to lower shipments for paper, higher unit costs related to downtimes, lower pulp prices and higher energy usage and higher costs related to chemicals and fiber.

These were mitigated by lower energy prices, lower fright costs and the favorable exchange rates. On slide ten, you can see that paper shipments were 94,000 tonnes or 8.7% lower than the third quarter while pulp shipments were 9% higher.

As a result of the sudden drop in paper demand and weak market condition in pulp, we adjusted our production by taking machines on time and slow down across our mills system which resulted in higher unit cost. On slide 11, you can note that the 197,000 of down time was eight times as much as what had been taken so far in 2008.

We also curtailed production by 100,000 metric tonnes in pulp. We further improved our inventory level reducing paper inventories by 32,000 tonnes but couldn't avoid an inventory build in pulp as shown on slide 12.

Our transaction prices for copy and asset were essentially flat from the third quarter, but the weak global pulp market and record level days of supply resulted in a sequential decrease in pulp prices of about $145 with them. Moving to the Merchants on slide 14; sales declined 11% from the third quarter mostly due to the 11% drop in paper deliveries in the segment and an operating income of $2 million in the fourth quarter on a D&A charge of $1 million.

The sequential improvement is due to the increase in allowance for doubtful accounts that was recorded in the third quarter. This was mitigated by lower volumes.

Now the wood business on slide 15; although sales were 22% lower than the third quarter, the segment posted another improving profitability with an operating loss before items of $9 million. This improvement is due to a favorable exchange rate and continued cost control in the business.

This was partially offset by lower average selling prices and lower shipment. Turning to our debt structures; we have no major maturity before 2011 and we have reduced the amount of spending on the 2011 maturity by $60 million to $540 million in the quarter.

Drawing on our credit facility amounted to $60 million at year end compared to $50 million last year. With respect to liquidity available on slide 17; we have $634 million available under revolver net of the letter of credit, and we also have some availability in our $150 million securitization program.

Turning to our pension fund; although we have an asset mix that is mostly fixed income, our planed returns suffered from the market collapse in 2008 for an overall negative return of 19%. This includes an additional write-down of our Canadian ABCP investments, bringing the total provision to 45% of the initial ABCP investments.

Our funding status went from a deficit of $147 million at the end of the last year to a deficit of $75 million at the end of 2008. Finally, our disciplined (ph) pension expense will be approximately $15 million next year about the same as 2008.

Before handing the call back to John, you will find in the Appendix, our assumption of some key financial including CapEx and pension contribution over expense for next year. With regard to capital spending, our guesstimate at this time is a total of 140 to $170 million.

Required contribution to the pension plan over expense should be limited as a result of the $96 million early contributions made in the fourth quarter. D&A charge should be in the 400 to $425 million range in 2009.

Interest charge based on total interest rate and given approximately thirds of our adjusted expense should be in the range of 130 to $150 million. Finally a few words on income tax; I believe that a low-40 rate should be reasonable but note that the evaluation are the ones on Canadian deferred tax assets taken is basically limiting any future income tax or income tax recovery on booking earnings from our Canadian operations, therefore creating more volatility in our consolidated of tax rates.

So this concludes the financial review and with that, I will turn the call back to John.

Thank you, Daniel. As we just saw, 2008 was a year of great contrast.

In the first half of the year, we saw accelerating inflation from materials and freight but with moderate paper demand decline and rising prices, which obviously allowed us to expand margins. And in the second half, there wasn't much relief in input costs but paper demand deteriorated, while pulp prices fell sharply.

Nonetheless, our employees responded quickly, executed well and a number of goals were achieved. Balancing our production with demand was successful with no inventory build in the papers business.

Over 600,000 tonnes of paper making capacity was rationalized in order to reduce costs. Headcount was reduced by 1900 people, about 15% and average paper prices rose 10% over 2007 levels.

We've also achieved an impressive health and safety record with an incident rate in our pulp and paper business of 1.65, which is a strong improvement on prior year. And of course the synergy program was successfully completed.

Of course the weak economy will continue to impact our operating environment, but we have highly efficient world-class assets, a motivated and skilled work force eager to preserve Domtar's low-cost position in the industry and our solid market position. So my commitment is to build on our strengths and make the changes necessary to adjust to the various competitive environments.

So in the few weeks, I'll be working closely with the management team to establish our priorities. Operationally, as we work through the downturn, I'm determined to run our assets the best we possibly can to reduce the costs of balancing our production to customer demand.

Financially, Domtar's priority will remain on cash flow generation, with an immediate focus on reducing discretionary spending, reviewing procurement costs and inventory control. Looking forward, there's a lot of uncertainty in the economy, making demand projections impossible.

But our plans of the demand trends similar to what we've experienced in the recent past and our organization needs to ready to execute fast in rightsizing our paper manufacturing system. We're at least starting a year with our inventory under control and prices for our uncoated paper products are stable.

But of course margin retention is critical to us. We'll spend no effort monitoring customer orders and backlogs, making the necessary adjustments and managing our business efficiently.

So thank you and I'll turn it back to Pascal.

Thank you, John. Michelle, we're now...

we're ready to open for questions.

Thanks. Hi everyone.

Good morning.

Good morning, George.

Hi, George.

I guess, first question on cash flow John or Daniel, obviously you outlined your CapEx depreciation and other forecasts for this year, pension funding looks to be in good shape. What else can you do perhaps maybe you mentioned that I missed it.

What else can you do perhaps on working capital and then other areas to get or generate even more cash from the business, as it exists today?

Daniel, George answering the question. I think there is room for us still in the payables.

I think at the end of year, our receivable are in reasonable shape. I think it can probably improve our EBITDA collection, there but not much.

I think the customers are generally paying within time. But the sudden drop in the manufacturing costs is because of the lack of demand in order, reduced demand in Q4, made a huge use of cash in the payable.

So that should come back to more normal in the coming quarters. So that's one thing and obviously there is always inventory that we're working hard to maintain, not to build but also reduce.

As we have in one of our slides over the last few quarters, we have been going through a tough market in the paper business to significantly reduce our inventory level.

Okay. So it also sounds like besides from perhaps further rationalization, there aren't any other secular magic poetry on the free cash flow.

Just hoping the cycle takes care of itself and some of these timing differences working your favor in 2009 relative to 2008 at the end of year.

George, if I could... its John again.

Obviously, there are a number of issues where we have tail of stuff. Some of it we've closed whatever it might be and we're working hard to monetize some of that.

If I might take you through the detail of that, but we've had a number of things boiling along for a while and I think in 2009, we're going to do our best to accelerate some of those processes.

Okay. One last question and I'll turn it over.

When we look at the sequential decline in papers profitability, certainly no one is having a terrific time of it in this environment but it looks like your performance drop perhaps a bit more than others. Do you...

what do you think the reasons are behind that from what you know and you it'll at all, put it to question perhaps the strategy of downtime versus volume versus pricing? Thanks guys.

I'll turn it over.

Let me start. Daniel again, George speaking here, there is no doubt that the amount of downtime that we took in Q4 in both pulp and paper was or ends up to increase our costs.

But I think this is still... we still believe this is a right decision.

There is no demand out there. So even if you were to try to sell paper, the only impact would be price erosion with no additional tonnes other than the first we get to do that.

Yes.

So that's I guess part of the game in this tough economic environment. Dick you want add to that?

I think the other factor within the business that probably affected us more is our mix of our business on pulp side. We're very sensitive to a sudden erosion in demand and pricing in Asia.

So that would probably take us out of the norm in terms of our profile with typical pulp and paper business.

Okay, that's helpful. That makes sense.

Thanks guys, I'll turn it over.

Thank you, George.

Thanks, George.

Hi. Thank you.

Daniel, can you just talk about what the covenants are under your term loan that I think is due in 2011 and why would you make the decision to pay the pension, contribute... the voluntary contribution versus paying down the term loan?

The term loan is covenant like. So there's no real covenant in the term loan but we have covenants from the revolver.

On the revolver, there's a slide in the presentation. Its 4.5 debt-to-EBITDA max and the EBITDA-to-interest is 2.5 minimum.

So we're well within those parameters. The only reason why we've made contribution to the pension plan was the covenant share ratio of the plan following the market return in 2008 was such that we felt it was the right thing to do to, to bring that to a more reasonable level.

And by the way, that decision will benefit 2009 because that's going to reduce by the almost the same amount, the cash needed in 2009 in our pension plan.

And could you talk to how much you expect to save from the reducing of discretionary spending and the salary freezes that you've put in place?

I mean, it's not a great deal of money. I will think from all of it probably 10 to 15 million in totality, by not...

it's an avoidance part of course on the salary front if you take my point. Yes?

So if were going to pay 3%, and we're not, that's probably a saving of 7 or 8 million, plus the discretionary piece. Yes?

Okay. And then just lastly, can you just provide us maybe an update of where you're seeing volumes and pricing.

Where we are today in the first quarter versus the fourth quarter averages?

Sure, I'll take that, this is Dick. The January on the paper side, doesn't look really any different than November and December from a demand side.

As you can imagine, we're watching that very closely and it looks to be a mirror image of the November, December period. We talked to a number of customers just in the past couple of days about their January and they're reflecting the same kind of the activity levels.

So we've not really rebounded at this point. At the same time, on the paper side, prices appear while we don't have final numbers, prices appear to be.

Thank you.

Okay.

Hi. Good morning everyone.

Sandy (ph), good morning.

Just given the demand trends you are seeing out there, can you give us any guidance on what you expect first quarter down time to look like? It looks like your pulp inventories continue to increase by the downside.

The paper inventories started to come down in the second half, so where do you think down time will shake out in the first quarter?

I think on the down time front, we're really taking debt every second week. When we're sitting down with the operation and the sales folks and we're trying to look at what the variability of our capacity and what the variability of demand and we're adjusting to that.

As Dick just to share with Rick, we're not seeing a lot of movements in the demand trends in January. So, we are going to benefit from the Dryden closure that happened late November...

early November, I think and the Plymouth number five closure that will happen late in February. So, we should see less down time, but again that's all depends on demand and our way to adjust to the events.

So, as those machines are closed, especially the one in February, that should help bring down the down time cost per tonne that you had only experiencing?

Yes. You're right.

Okay. And just last question in terms of the capital structure; you mentioned you were repurchasing some bonds in the fourth quarter.

Have you continued that into the first quarter or that's something you will continue to do opportunistically?

Not for the time being. We're going to use our cash right now for reducing the use of our revolver and the rest will be sitting in the balance sheet.

And that's the... for the foreseeable future our strategy.

Okay. Thank you.

You are welcome.

Thank you. Were there any write downs during the quarter, let's say wood or pulp?

Beg your pardon.

Any inventory write downs, sorry?

Very little. In fact, we had to take some net reusable value write down of inventory in the pulp business for our Canadian operation.

I think for the quarter it was more or less $7 million that was adjusted because of low price of pulp entering into the New Year.

Okay. And in terms of the line of credit then the way we did is the $634 million available on the revolver and about $40 million on the securitization program?

Yeah.

That's it?

Yeah, you're right.

Oh, good. And can you tell me what lumber mills and what pulp mills are running at the moment?

All pulp mills are running. In terms of lumbers.

Two closures.

There's two closures that's been announced lately. One in Domtar and] and two that are linked in Ontario.

Would there be plans to close any pulp mills or do down time?

Mike, do you want to take that one?

We are presently running some of our Northern mills and have slowed that move with that inventory building. We are obviously at the point whereby it's very difficult to take a Northern mill down in the middle of winter time.

So we are evaluating options going forward.

Okay. Thanks very much.

Thank you, Steve.

Thank you.

Thanks. Good morning guys.

Good morning.

I just wanted to ask about, first of all uncoated per sheet prices. You guys mentioned that you're seeing prices relatively stable that there is an industry need that are out there that suggest some price erosion that's while it is not enormous, it's not negligible either.

I'm wondering how you think we should reconcile that?

That's a very good question. And I guess my answer is that these publications are often times take anecdotal information and try to piece it together.

I don't minimize what they do because that's a difficult task, but I'm not sure if it's a true measure and they tend to look more at certain channels than others. All I can tell you is within our broad base, prices are quite stable and as you know, we sell or Broadway products or Broadway market segments and certainly with in cut size which is the biggest product in terms of percent of the market.

We sell to all the channels as well. So, that's the best I can offer in terms of reconciling it.

Okay, thanks for that perspective. How about in terms of input costs in 1Q relative to 4Q?

Can you give us some perspective on that?

Looking at input cost going forward, the majority of our cost and the major element of cost is the fiber cost component and a number or mills are very dependent on residual fiber. And residual fiber is still being impacted by the housing market and saw mills.

So that's an issue there. We are seeing some help from fuel costs from the fiber side as well.

So that is from a fiber perspective that's what's going on. If you look at the other major component as chemicals and again it's a mixed bag in chemicals where we are seeing some downward pricing in some of the chemicals but as other such as chlorates, caustic and sulfuric acid are in short supply.

And generally, they are not moving at this point in time.

So, on the whole, you're not going to, you wouldn't expect a big quarter-over-quarter change in --

No.

Yes. Okay.

And then getting back to the downtime and capacity issue, I don't want to beat the dead horse. But I'm wondering to what extent there might be even more opportunities to close other facilities, so that your average costs goes down because you are not taking so much downtime of facilities that are not closed?

I think we're definitely looking into it. We have to have a prudent way I guess to permanently shut something because when it's shut, it's shut.

It can be opened. So we have to understand what part of the reduction in demand that we've seen over the last couple of months, that is, because of the recession and what is there to see.

So you can be sure that we're really thriving to reduce our costs per ton and when we're doing it, would be to have less lack of order downtime or to fully run fewer mills. So that's defiantly high on our list.

Okay. Thanks for your help.

Thanks.

Thank you. My first question is with respect to Plymouth.

How can you continue to run the pulp machine? Doesn't that exacerbate, just the market pulp downturn?

This is Mike Edwards. I'll take this question.

What we're going to do at Plymouth would be maximizing our soft pulp capabilities at Plymouth. And we still see some opportunities in moving soft pulp into the market.

Okay. And then is the lumber business still for sale?

We're not a long-term owner, Steve would be my view of that. But while we are owner, we're going to run that business as well as we can.

Thanks. Final quick question; just wanted to make sure I understand your FX graph on page 26.

So if the Canadian dollar remains at or around $0.81, you have basically $145 million cash flow benefit which is offset by $33 million on your hedge?

Yes. That's...

if you look on a year-over-year basis, and using the average exchange rate of the last 12 months, if you go and see on page 25, you have our portfolio of hedges for next year. So you can do the math for that depending on your own assumption of the currency, you'll be able to the plus and minuses.

But it should be a tailwind this year?

It should be positive. Yes.

Great, thank you very much.

Thank you.

Thank you.

Hi. Thanks very much.

Good morning.

Good morning, Claudia.

Good morning, Claudia.

Most of my questions were asked. But I was hoping you could just make a couple of comments maybe on what you're seeing some at trade-flow perspective in uncoated.

And then if you have any sense of what your customer inventories are like in uncoated as well, that'll be helpful.

Sure Claudia this is Dick. Good morning.

Good morning.

The trade flow, as you probably know, the latest data we have is through November and we are watching it very carefully. It has not increased.

There have been some changes though. It appears there's more trying to come in from Brazil and more from Europe and then less from Indonesia.

So in total, it's flat. In total was actually down slightly from the previous year.

So that one looks to be stable again with most recent information we have. On the inventory level, merchant inventories which are the probably the most reliable information we get and the most timely, they've trended down over the second half of the year.

So they look to be in good shape. And as you would have expected given the credit issues late in the year, they actually went down a bit more during that time period November, December.

Do you think the credit situation has got a little bit better for your merchants?

I think they are watching their working capital certainly very carefully and I guess that's one of advantages we have as we did consolidate last year on to a single supply chain distribution systems. So we're able to offer them very reliable service.

So I think we're helping them actually.

Okay, great. Thanks a lot.

Thank you.

Well hi, good morning guys.

Good morning.

I apologize if I missed this. You talked about the bond repurchase.

Can you just let us know if you're able to buyback additional bonds given the level on your recession there?

2011, we've no... or literally no restriction on buyback, but we have no intention to buy any other bonds in the foreseeable future.

The use of cash in the coming quarters will be or the coming months will be to reduce the use of our revolver and to carry it on the balance sheet for the time being.

Are there restrictions in buying back the longer-dated maturities?

The longer dated, I cannot... we cannot buyback, that's a restriction that comes from the banking if you will, including the Term Loan B.

Okay. And then just on the pulp side again if you talked before I do apologize.

Is there any way that you can sort of restructure your customer mix, take advantage of especially better prices in North America versus shipping out to Asia, is there any way to increase your markets by doing that?

We've done a bit of that. There are a couple of variables that make it difficult.

We have a pulp mill in the East Coast and a pulp mill in British Columbia that are just so well suited to export. It wouldn't make sense to switch them then try to sell the product domestically because the additional freight costs would offset the apparent benefit in selling price.

So that's a variable. At the same time, we have pulp mills that are kind in the center in the continent.

So what we try to do is, ship those or use those products to supply our internal domestic customers. So by enlarge, you end up with a mix that's 60-40 export versus domestic.

Okay. Thanks a lot.

Thank you.

Thank you.

Okay, thank you very much Michelle, and thank you to all of our participants. And we will see you at the end of April for our first quarter earnings call.

Thank you very much. You all have a very good day.