South African papermaker Mondi posted a fourfold surge in annual profit, helped by recovering demand for paper and packaging, and said it would hike prices to cushion the impact of rising costs.

The global paper industry is slowly recovering from a slump triggered by weak demand and overcapacity that was exacerbated by the economic crisis.

Mondi, which is also listed in London and mainly involved in the manufacturing of packaging paper, expects demand to climb further in 2011, albeit at a more modest rate, while costs are also seen rising.

It is a good outcome not withstanding the challenges that remain ahead, said Sasha Naryshkine, an analyst at Vestact.

The rising cost part is what a lot of manufacturers will have to deal with, and you will see that passed on to consumers and as such become inflationary.

Mondi said it would raise prices of uncoated fine paper, recycled containerboard and white top containerboard in the first quarter of 2011, while further box price hikes would be sought later in the year.

The company was cautious of rising costs of raw materials and electricity prices, mainly in South Africa, and was looking at co-generation projects, where power is generated from manufacturing by-products.

We will continue to look at projects to increase energy efficiency and explore what co-generation opportunities could exist once the regulatory environment provides greater clarity, David Hathorn, Mondi's chief executive, said on a conference call with reporters.

PROFIT SOARS

Mondi said headline earnings per share for the year to end-December totalled 47 euro cents, from 11.4 euro cents a year earlier.

Headline EPS is the key measure of profitability in South Africa and strips out certain one-off items.

Mondi, which cut 12 percent of its capacity during the financial crisis, said capacity reductions boosted the industry's recovery and improved the pricing environment.

Mondi said revenue rose 18 percent to 6.2 billion euros, while underlying operating profit was up 73 percent at 509 million euros.

Mondi declared a final dividend of 16.5 euro cents per share.

Mondi's rivals Sappi, UPM-Kymmene and Stora Enso also reported growth in profits earlier this month.

Mondi's shares were up 2.1 percent at 62.88 rand as of 1026 GMT, outperforming a 0.58 percent rise in Johannesburg's All-share Index

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