Spicers, formerly PaperlinX, posted a profit of $5.3 million for the 2016 financial year – the company’s first full-year profit in eight years – and says it's making progress towards solving a deadlock with its hybrid shareholders. But the Australian business experienced a disappointing 12 months because of ‘competitive pressures’ in the commercial print market and foreign exchange volatility.
“The Australian business experienced a challenging year,” said chairman Robert Kaye. “Underlying EBIT of $5.4 million was disappointingly down 40 per cent on prior year. Total sales revenue and gross profit were adversely impacted by competitive pressures in the Commercial Print market and foreign exchange volatility, which impacted pricing and cost of sales. Strong growth from diversified categories partly offset these factors, reflecting the ongoing broadening of the business’s revenue streams.”
New Spicers CEO David Martin said a total Australian, New Zealand and Asian (ANZA) sales revenue decline showed that “our core revenue streams, paper product related sales, fell at an annual average of 8 percent, approximately double the total rate of the trend. This has primarily been driven by the structural decline in paper use as the world becomes more ‘digitised’. Strong growth in revenue streams, such as Sign & Display, have partly offset this decline.”
Kaye said the company’s statutory profit of $5.3 million for 2016 validated the 2015 decision to focus on its profitable ANZA regional businesses in the wake of the collapse of its European PaperlinX businesses.
“Spicers New Zealand delivered a strong result for the 2016 financial year, with earnings before tax up 18 per cent to $NZ7.8 million. The Asian business more than doubled its underlying earnings before tax result to $SG1.6 million. Diversified categories, such as Sign & Display, performed strongly overall."
Negotiations were continuing to try to break the deadlock with hybrid shareholders, he said. The company issued 2.85 million hybrids at $100 in 2007, several years before the collapse of the PaperlinX operation in Europe.
In October this year, Spicers offered the hybrid shareholders a new deal that it hopes will restore the company’s capital structure.
“As announced on 11 October, Spicers has tabled a non-binding, conditional proposal (“the Proposal”) and entered into discussions with The Trust Company, the Responsible Entity (“RE”) of the SPS Trust, regarding a proposed transaction to simplify the Spicers capital structure," said Kaye. "Discussions between the Board and the RE in relation to the Proposal are progressing well, and we hope to be able to announce more details soon. The Board will ensure security holders are kept appropriately informed as discussions progress. As you are well aware, these legacy issues significantly limit Spicers’ commercial and financial options, including our ability to raise capital and pay dividends."
Martin outlined a number of growth opportunities for the company.
"The Sign & Display product category is one that highlights the diverse range of growth opportunities available to us. This product category has a variety of different markets and applications, each with different and unique characteristics. Rigid substrates used for signage, such as acrylic and composite sheets, provide a strong base of organic growth. Flexible substrates, such as vinyl and films, is a dynamic category with products being used for an ever-expanding range of applications.
"There are also a number of rapidly growing ‘hot trend’ and project based sectors within the Sign & Display product category. Architectural finishes, such as surface cladding and insulation is an example of ‘market development’ growth, some of which you would have seen on display."
"While challenges remain, there are also many strategic opportunities," said Kaye. "The path ahead to put Spicers on a stronger and more sustainable footing for the future is clear.”