A shocking performance by the troubled European assets of PaperlinX in the half year to December31 has taken the gloss off a good performance by the local Spicers company under new CEO Andy Preece.
Direct sales at what, Robert Kaye, Chairman, describes as "unsustainable prices" by paper mills to PaperlinX customers in the UK and Benelux countries raised the stakes as demand dropped more than expected. The paper war is a result of ongoing tensions between former management and some of the largest mills in the industry, with Andre Price, former managing director, taking paper mills to court.
A strategic review underway is likely to see PaperlinX offload its European paper companies that continue to bleed money, with Kaye indicating that the results are putting pressure on the Group's cash situation. Negotiations are underway to sell either the whole of the Europe business or some of its operations. Given the company's parlous financial situation the assets are likely to go in a fire sale situation.
The half year report said that despite consistently positive performances from Spicers ANZA and Spicers Canada, the results are negatively skewed by the underperformance of the European business, which experienced a very tough six months and in particular the second quarter. “We have continued to lower our cost base through restructuring and cost reduction initiatives and achieved a drop in trading expenses but this has not been enough to offset the fall in sales in Europe which has impacted the Group's performance. This also led to pressure being placed on our European lending covenants,” said Kaye.
"This is a disappointing result out of Europe. In December when we announced the Strategic Review, the Board flagged it was taking a more cautious stance on the outlook for the European business and we had no choice but to consider the position regarding non-ANZA assets.”
Since then PaperlinX has sold Spicers Canada for C$63 million ($AUD 645 m) after writing down the goodwill by C$3 1.7 million.
“The sale of Spicers Canada provides liquidity into the Group to ensure the Strategic Review can continue and ultimately can deliver the best outcomes for shareholders," said Kaye. "The Review is progressing and we remain positive about the prospects of securing transactions with one or more interested parties in relation to our European businesses.
"Once the Review is finalised and the recommendations are implemented, it is likely that PaperlinX will have a reduced portfollio.
"The Board is confident that the newly appointed Managing Director and Chief Executive Officer, Andy Preece, will lead the Group forward with a renewed focus for growing our diversified offer and managing the structural shift in Commercial Print. Andy has a track record of building positive relationships with key stakeholders and delivering strong results despite difficult trading conditions,” said Kaye.