Earnings to take a hit as PaperlinX restructures

Market conditions remain tough for PaperlinX as it faces continued price pressures, a weak US dollar and the rising costs of raw materials. David Meiklejohn, chairman of PaperlinX, confirms his company is getting underway with restructuring and development programs that will involve the investment of capital and current earnings to deliver sustainability.

“The implementation of these programs has had, and will have, negative impacts on 2006 and 2007 earnings,” says Meiklejohn.

PaperlinX says its strategic response to the current market environment has revolved around improving long-term returns for its merchanting and manufacturing businesses, calling for some tough decisions.

“We have initiated projects to improve and strengthen our core businesses, we have exited businesses where we do not have competitive advantage and we have acquired businesses which will improve our market position and profitability in the longer term,” says Meiklejohn.

Some of the biggest restructuring initiatives for PaperlinX include the upgrade of the pulp mill and bleach plant at Maryvale; the closure of a paper machine at the Shoalhaven mill; the purchase of the Cascades merchanting business in Canada; the restructuring of its merchanting operations in the Netherlands; and the rationalisation of its logistics operations in the UK.

“There are other projects and initiatives planned for 2007 and the costs of these will be offset to some extent by the cost and profit benefits delivered from the actions taken in 2006,” says Meiklejohn.

When PaperlinX released its full-year results in August it indicated there were few positive signs that the economic fundamentals affecting the business were improving, and Meiklejohn claims this is still the case.

“I confirm that this situation has not changed and the negative headwinds of excess global capacity which is depressing paper prices, higher input costs and the ongoing effects of a weak US dollar have continued to impact our businesses in the current financial year,” he says.

“There do appear to be some positive developments that could lead to improved capacity utilisation rates globally for both coated and uncoated grades which in turn could have positive impacts on pricing, but we believe it is premature to predict any sustained improvement in these factors."

However, he says said PaperlinX is already benefiting from its initiatives. “And as a consequence the earnings for the September quarter for PaperlinX overall and for each of our merchanting and manufacturing businesses are ahead of the corresponding period last year," Mr Meiklejohn said.