Johannesburg - South African papermaker
Mondi [JSE:MND], betting on fast-growing markets in eastern Europe, expects demand across its paper grades to keep growing, albeit at slower rates, its chief executive said.
Mondi, also listed in London, cut 12% of its capacity during the financial crisis and has no plans to streamline operations further, confident of being able to benefit from a strong position in emerging markets.
"We are extremely well positioned to be very cash generative across any phase in the pricing cycle for our products," CEO
David Hathorn said in an interview late on Thursday.
He said however that other companies with high-cost assets - such as some of the uncoated fine paper producers in western Europe - would need to cut capacity or fear losing money.
"That market is not going to grow, it's going to be flat. It has recovered from the crisis levels, but on the long-term structural basis that market is mature and therefore there will be ongoing need for rationalisation," he said.
Mondi, mainly involved in the manufacture of office and packaging paper with operations across 31 countries, swung to profit in the first half of the year owing to better prices and increased demand.
Unlike some of its peers, Mondi has been increasing its presence across emerging markets. It has commissioned the refurbishment of a paper mill in Russia and is ramping up production at a new recycled containerboard machine in Poland.
Both assets will take until 2012 to operate at optimal run rates, Hathorn said.
Cash generationThe chief executive said Mondi was not actively looking for any new acquisitions for now, but would instead focus on generating cash to pay off some of its debt and increase dividends to shareholders.
"Our top focus is generating cash, running the assets properly. We remain open minded to acquisitions, but it's not high on our list at this stage," he said.
He said if the company pursued any further acquisitions in Russia, where Mondi was one of the pioneers among foreign investors in the country's timber industry, it would be on a brownfield basis to avoid the cost of building infrastructure.
Mondi, which is about 85% self-sufficient in power generation, would also explore co-generation to make its plants more efficient, but the company would not seek to become a power producer as have some of its peers, Hathorn said.
He said a tight market following recent capacity cuts was supporting price hikes although it had no plans to raise prices for now after increasing prices for kraftliner, sackkraft, uncoated fine paper B grade and recycled container board.
Mondi's South African division is exiting the uncoated fine paper export market due to poor profitability given a stronger rand and higher electricity costs. It will focus on pulp production which is benefitting from rising pulp prices.
The rand - which has strengthened more than 25% since the start of 2009 and is trading near a two-and-a-half year high - remains the biggest challenge for South African exporters.