The paper merchant’s determination to revive its European businesses is due, in no small part, to the fact that it cannot sell them. According to Andrew Price, executive director responsible for driving the reconstruction of PaperlinX Europe, there are no buyers prepared to make a sufficient offer for the troubled European assets that have proven to be a drag on the company’s progress. Faced with the task of rationalising the different country operations, PaperlinX has cashed up its portfolio to give it the money to complete the job.
Price maintains there is no alternative to the turnaround strategy already underway. “There is no one around prepared to make a half reasonable offer for the European assets, so we have made the commitment to fix it ourselves,” he said. “We have already brought all the continental companies under the one PaperlinX brand so as to better effect efficiencies.
“We are starting to operate as a global business with a customer focus. Andy Preece from Australia and Cory Turner from Canada [managing directors of the successful entities] are now spending time with the European business to share their expertise. We have a great team and tons of cash to do what is necessary. I’m very confident in the future of PaperlinX, a lot more than I was twelve moths ago.”
Price’s upbeat appraisal follows a watershed full year results for 2013 that saw debt slashed by 17% to $123 million even as volumes fell in extremely challenging conditions. PaperlinX posted an after tax loss of $90.2 million, down from $266.7m last year. The company has announced it expects to be marginally profitable next year. It has affirmed its financial position including capitalizing its German invoices.
The Australian, Canadian and New Zealand companies all posted significantly improved results, throwing into stark relief that PaperlinX problems are mostly to do with its European operations. It is also why Price is returning to London to continue driving change in the region.
“Europe is the problem and it’s not going to be an easy fix, but we’re determined to make it work. It’s not a one off project but a constant restructuring," he said.
According to PaperlinX, the European businesses revenue was down 12% in local currency - due to market decline in paper, and loss of market anticipated due to significant sales force restructuring. There was a 12% reduction in the number of employees throughout Europe.
Underlying earnings in Australia & NZ of $13.0m were an improvement on last year’s $10.9m.The company said this result was achieved in extremely tough trading conditions where strong margin and expense control in Australia and New Zealand more than offset a volume shortfall.
And then there are the hybrids
In a bid to appease its fractious hybrid shareholders – investors that own PaperlinX Step-Up Preference Securities – the company’s board said it was exploring a scrip-based merger between the company and the PaperlinX SPS Trust. This deal would effectively see the hybrid securities exchanged for regular shares.
The proposed option is unbinding and is in preliminary discussions with the Trust company. Additionally, the company said it was also considering a number of alternatives, but Price was adamant that the option proposed constituted a genuine offer.
This was rejected by Graham Critcheley, convenor of the PaperlinX hybrid investor entity, PXPUPA Investor Group Supporters (PIGS), who claims the option put forward is nothing but a hollow proposal and is unlikely to come to fruition. This response was to be expected given the history between the two groups and to some extent between Price and Critchley.
“There is no real proposition here,” said Critchley. “Right now, the conversion rate is about 1000 to one and if [Robert] Kaye thinks he can negotiate a deal, then he’s wrong. This is merely a non-binding discussion.”
For Critchley, it is unlikely that the hybrid shareholders will accept the proposal by the PaperlinX board.
“25 per cent of the total holders will block any proposal,” he said. “And, they’ve got to get the proposal up from the ordinary shareholders as well. They didn’t have those discussions until they became aware that we had lodged a substantial formal complaint. We’ve had a moral victory.”
The PIGS held an online webinar prior to the publication of PaperlinX’s financial results on 21 August for concerned hybrid shareholders, which, according to Critchley saw some ‘feisty’ discussion. PIGS will hold second, post-financial results, webinar on 27 August at 5pm (AEST).