PaperlinX profits plummet

PaperlinX profits fell to $65.4 million during the 2005/06 financial year with revenues also dropping 2.5 per cent to reach $7.4 billion. The company was also slugged by the poor performance of its manufacturing arm Australian Paper, which suffered a loss of $4.1 million.

Tom Park, CEO of PaperlinX, claims the disappointing figures reflect the challenging market conditions the company has faced over the past three years and will continue to face in the new financial year.

“Structural global oversupply is the key issue facing the paper industry, which, combined with the weaker US dollar, has resulted in weak paper prices in markets other than the US,” says Park.

“The major factors impacting our manufacturing profits in Australia also include the rising input costs that all industries are facing, and the unique input cost of rising pulp prices that our industry faces. These factors continue to impact earnings as we enter the new financial year.”

While the tough times are set to continue for the paper industry, PaperlinX points to its restructuring and development programmes as a means through which it will keep the earnings flowing in the second half of 2006.

“These programmes have involved investing capital and current earnings to improve returns for shareholders if current conditions persist, and to increase our leverage to any future improvements in the sector,” says Park.

The company expects its strategic initiatives to deliver cost savings of around $35 million in 2007 and over $100 million by 2009, with the actions spearheaded by the purchase of Cascades Merchanting (now called Spicers Canada) and the closure of the Shoalhaven number 1 paper machine.

Park also points to the cost savings it will achieve through the rationalisation of its three corporate stationery businesses into Paperlinx Office, and the outsourcing of a new wood yard facility for its Maryvale pulp mill. Both of these initiatives will cost PaperlinX $12 million in 2007 to implement.

“PaperlinX will continue to focus on identifying opportunities to improve our existing businesses to counter the input cost increases and currency impacts that were encountered in our manufacturing business over the past year and were unable to be passed on through pricing,” says Park.

“Our employees are to be commended for their commitment and enthusiasm to realise the full potential from the unique PaperlinX business model during this difficult stage in the paper cycle.”

Ironically, the markets responded to the news of the financial results by giving PaperlinX its biggest one-day gain in share price in more than a year with shares jumping 23c to reach $3.32 yesterday.