CPI looks to paper merchant industry consolidation for salvation

Despite a nominal return to profit, CPI–Results a downbeat report to the CPI annual general meeting saw Gerry van Wyngen, chairman, canvas the merits of industry consolidation as a means of restoring value to the balance sheet of the troubled public company. As the third largest paper merchant in the region, after PaperlinX merchants and The Red Group, any such move would have seismic effects on the sector.

In his address he said, “Some of the questions we receive relate to the merits of industry rationalisation, as logically this should reduce the unit operating costs of participants in the merchant paper industry. It is a belief we ourselves subscribe to, and that we will investigate if an opportunity arises.”

He said he understood the company’s competitors are hurting in a similar way. “Unfortunately that is no comfort to the CPI board, or to CPI shareholders, nor can we or will we run a business on this basis.”

During the year the company realised the remaining assets of its former imaging division and sold its state of the art warehouse facility in Wetherill Park, NSW. In recent weeks it also sold its interest in the Braeside headquarters in Victoria.
The machinery division, which has the agency for Komori presses in the region, underwent a substantial reorganisation. The company claims that although the division remained unprofitable for the first third of the year, orders in hand will ensure it will turn a profit in 2006 – the first in many years.

Bernard Cassell, managing director, in his address to the annual general meeting, emphasized the bad news from the paper division. In addressing the vexatious problem of margin erosion he said; ”Your Board and I agree however that this position cannot be allowed to continue, and although we continuously strive to broaden the base to achieve a satisfactory level of profitability, regrettably this alone is not enough. Irrational pricing behaviour has taken it past this point.

“The paper industry worldwide has been brought to its lowest ebb by this irrational behaviour. It surely cannot continue for much longer.”

Summing up, Cassells made the point that the company’s net asset backing is well above the current share price, and its plan is to improve the financial position in order to pursue any expansion opportunities that may present themselves.