PaperlinX to shut down Shoalhaven paper machine

PaperlinX claims the decision follows a review of the requirements of Australian Paper customers and extensive trials at the Maryvale Mill. The shift to Maryvale is scheduled for completion at the end of the June quarter, and will result in job losses of 98 production roles and 21 maintenance positions.

David Goldthorp, CEO of Australian Paper, claims the company was placed under intense pressure from imports, increasing fuel and distribution costs and a strong Australian dollar. Earnings for Australian Paper declined to $2.6 million from the $16.8 million result this time last year.

“To enable the Company to retain a sustainable manufacturing presence in Australia, the decision to close the Number One paper machine has been unavoidable,” says Goldthorp.

“The Company has maintained ongoing communication with employees and unions throughout the process, and I would like to thank them for their cooperation,” he says.

The closure will cost PaperlinX approximately $15 million, including what it terms as 'generous' redundancy packages and retraining for remaining employees at Maryvale. The company claims the closure will deliver significant savings for Australian Paper and be earnings positive by 2007.

“Over the past 12 months the company has announced a number of operational actions, including the pulp mill upgrade at Maryvale and investment in growth areas such as our brands, to improve profitability and return Australian Paper's business to its target return on average funds employed over time,” says Goldthorp.

PaperlinX claims the move will strengthen Australian Paper's competitive position by balancing capacity across its four paper mills. While domestic sales will remain unaffected 40,000 tonnes reduction in overall capacity, unprofitable exports will be scaled down following the closure. Shoalhaven will continue to produce specialty paper through machines two and three.

Financial results for PaperlinX

Released in conjunction with the announcement of the Shoalhaven closure, the financial results for PaperlinX for the second half of 2005 showed the company secured a profit after tax of $35.3 million. This is an increase on the $30.2 million profit of the first half of the year, but a fall on the $59.5 million it received this time last year.

Tom Park, PaperlinX CEO, claims the half-year proved to be a tough one for the company.

“The result is as expected in a depressed market environment where the coincident factors of price, volume and the ability to recover input cost increases in manufacturing have all tracked negatively,” says Park.

In spite of such lacklustre results, with paper merchant earnings dropping $14 million to reach $92 million, Park claims PaperlinX is continuing to make progress on the key areas under its control.

“Earnings from our global paper merchanting business have partially offset the significant decline in profitability at Australian Paper and helped maintain our position in the top quartile of global paper company returns.”

“The merchanting business continues to be the growth engine for PaperlinX. It has partially insulated us from the downturn in our Australian manufacturing business, and we will look to expand this business further in markets where there are potential consolidation benefits,” says Park.

Park claims the company does not expect a positive upturn in the market in the short-term, with PaperlinX instead pursuing strategies of reducing costs, seeking merchanting opportunities and leveraging existing operations.