Tuesday, December 27, 2011

Interview With Abitibi CEO & Declining Demand

AbitibiBowater (changing its name to Resolute Forest Products) is a favourite of Prem Watsa & Francis Chou. Abitibi's segments include newsprint, coated mechanical and specialty papers, market pulp and wood products. The stock is near a 52 week low and both Prem and Francis have been adding to their positions. With the serious declines in newsprint, management is in a constant battle to cut costs. The Globe had an interview with its 'cowboy' CEO Richard Garneau. He has all the right answers for cutting costs, I have included the highlights below. You can check the full article here.

Are you satisfied so far with the efforts to remake the company?
I think that we are making progress. You’re never satisfied. … we’ve still got more progress to make. And demand is declining, so you always have to adjust your strategy and also look at where we have to go in the future to make sure we’ll be able to pay for all that and pay down the [$1.5-billion] deficit that we have on pensions. 

Is the industry still suffering from overcapacity?
There is still overcapacity … not only in North America but also in Europe. Our strategy is really to make sure that the mills that we have in our networks are going to be lower cost. … when you are in a trough or you go through the valleys, you need to have low cost and I’m very, very focused on that.

How do you manage the decline in global newsprint consumption?
We’re going to continue to see a migration, a slow migration to tablets and a digital age. We have to adjust our production to the declining demand. But timing is the difficult part. 

One union leader described you as a “fierce cowboy.” Would you say you take a hard-line, confrontational approach to labour?
No. Absolutely not. I disagree completely with that. I think that I share the information as well as I can. When I talk about the market, for example, I share with all of our employees, the union, that demand for our products was 24 million tonnes in 2009. Now in 2011, it’s going to be 13 million tonnes. Don’t expect that we’re going to continue to do business as usual. 

I should probably do some serious work on Abitibi given Prem and Francis' investments however the market price would have to compensate for violating one of Buffett's tenants:

Does the business have favourable long-term prospects? 

Garneau's last line which he uses in union negotiations is very scary for investors: "Demand for our products was 24 million tonnes in 2009. Now in 2011, it’s going to be 13 million tonnes."


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