by Laurent J. Barbé, Vice-President and Chief Operating Officer, Copap Inc.
As a mid-sized private organisation, Copap, like many others, needs cash to grow. The financial crisis could have signalled the end of our business as liquidity became constrained. In fact, despite a complete withdrawal of financing from our pre-crisis banks, the company emerged from the credit crunch better equipped to manage our cash flow efficiently, with record financial results in 2009. There were two elements to our strategy: firstly, optimising cash flow internally; secondly, working with external partners to achieve the right financing solution for our business.
Despite the growth of electronic media, the pulp and paper industry continues to grow strongly, with an annual turnover of $1.3tr. World demand for paper and paperboard is expected to grow from 390m tonnes in 2007 to 542m tonnes in 2025. Pulp and paper producers are global players, with mills in most parts of the world where there is fibre, water and access to energy. Copap alone does business with paper mills in about 30 different countries. Over the last decade, the sector has experienced considerable rationalisation, with significant structural changes in terms of individual firm capacity, corporate growth, and location of assets. For example, the world’s largest paper company, International Paper, has increased its paper and paperboard capacity by 3.1m tonnes annually. Large mergers between Jefferson Smurfit and KAPPA in 2005 and Abitibi and Bowater in 2007 resulted in asset closures of around 2m tonnes annually. Over the same period, producers like Chinese Nine Dragons and Southeast Asian APP increased their capacity by 5.3m and 1.3m tonnes a year respectively, while other Chinese paper producers also saw significant growth. Today, the ten leading paper firms account for 25% of the world’s paper and paperboard capacity, compared to 27% five years ago. The balance of power in the paper industry is shifting towards the East, with Chinese and Asia Pacific companies (excluding Japan) increasing their market share from 8% to 14% between 2005 and 2008, and Asia’s net import requirements expected to reach 14m tonnes by 2025, double its 2007 imports.
Our customers have also not been immune from the effects of the crisis. Like pulp and paper producers, consumers of these products have been experiencing sustained industry concentration, brutal competition from the electronic media, reduced margins and tight credit conditions. With both suppliers and buyers experiencing cost, competition, environmental and financing constraints, in a capital-intensive industry, the need for cash is critical.