In 2000, we took two significant steps to enhance our market position in major product areas. In August, we acquired the Grenada newsprint mill. The integration of the mill into Bowater’s system has been very successful, and we expect to exceed our initial synergy targets. In November, we announced the expansion of our coated papers business. The centerpiece of this plan is the conversion of a large newsprint machine at our Catawba mill to a coated groundwood machine. We will also add a second coating line to our first Nuway plant in Michigan and build two new coating plants, one in the mid-South region and the other in the mid-Atlantic region. When these projects are completed in 2002, the Catawba mill will be one of the world’s premier coated paper mills, with over 700,000 tons of annual coated paper production, and we will increase our highly profitable coated papers business to almost one million tons per year.

With a positive outlook for our products, we expect to continue to grow our earnings power. This will be done by focusing on cost reduction and profit improvement, executing our coated papers strategy and seizing opportunities to further grow and consolidate the newsprint business.

Our strategy is really very simple. Its three main principles are:

• Efficiency and cost improvements
• Product mix improvement
• Growth with financial discipline

Bowater’s track record for productivity improvement and cost reduction is proven. Our grass roots, continuous review process involves company employees at all levels, with effective incentive programs driven by our corporate goals. We successfully completed two major cost reduction initiatives totaling $270 million over the past five years and, during 2000, announced another $100 million profit improvement program.

The second part of our strategy is the improvement of our product mix. We continue to broaden our spectrum of products, leveraging our customer base and taking full advantage of our existing infrastructure to maximize earnings potential. The pending expansion of our coated papers capacity and the development of new uncoated groundwood specialty grades at our Calhoun mill are prime examples.

The third part of our strategy is financially disciplined growth. Since 1998, we have more than doubled our production capacity while maintaining a strong balance sheet and carefully keeping our capital spending below depreciation. This means that we are spending our capital dollars wisely, generating solid returns above our cost of capital, and buying back our stock when appropriate.

Our shareholder returns reflect a winning strategy. The chart above shows our five-year total return to shareholders. Although lagging the broader market index, Bowater’s shareholder returns have significantly outperformed its industry peers. We believe that our strategy will continue to build shareholder value.

In closing, I want to thank H. David Aycock for his 13 years of dedicated service as a member of Bowater’s Board of Directors. Dave has reached our mandatory retirement age for directors and will be retiring from the Board in May. We also welcome our newest director, Cinda Hallman, who brings years of solid business experience to our Board. To our shareholders, customers and 6,400 employees worldwide, I want to thank you for a great year.

Arnold M. Nemirow
Chairman, President and Chief Executive Officer
March 15, 2001