PaperlinX fire sale for profit return
PaperlinX will sell off three of its largest international paper businesses in a bid to shed its poorly performing divisions and give the company the liquidity it requires to complete its ongoing restructure and return to profit.
The company says it has entered an agreement to sell its US divisions of Spicers USA, and Kelly Paper for $76 million to New York-based Central National-Gottesman Inc, a large, privately owned global paper and pulp marketing company.
Additionally, the company has been given the green light by the European Union competition authorities to sell its Italian operations to Europe’s second largest coated paper manufacturer, Lecta, for (EU) €45 million, putting the final touches on the deal that was first tabled by PaperlinX in March.
The sale of these international businesses, comes after a strategic review process, and is part of an aggressive and ongoing company wide restructure that was kicked-off following a long-term profit slide and internal shareholder agitation.
While PaperlinX expects to net around €13 million after debts for the sale of its Italian business, and about US$3 million after debt repayment and transaction costs for the US operations, the company also expects to raise a further A$39 million from the re-organisation of an intercompany loan and exchange facility.
The company says that the financial instrument it set up in 2007 with its UK subsidiary to protect against exchange rate movements between the UK Pound Sterling and Australian dollar has been re-domiciled from the UK subsidiary to an Australian group company, removing any further exchange rate risk. This is expected to result in cash proceeds of around A$39 million.
Between the international business sales and the restructuring, the company expects to reap net cash proceeds of approximately A$93 million, which it says will go towards restructuring, debt reduction, and working capital for its Australian and European operations.
The company’s embattled chairman, Harry Boon (pictured) says that, “the strategic review process focused on reducing costs, strengthening the group’s financial position and creating a sustainable profitable business. Critical to this was the need to raise funds from the disposition of assets.
“The initiatives announced today [26 June], in conjunction with the restructuring plan, are expected to provide a significantly lower operating cost base, substantially improve operating liquidity, and provide a platform for a return to operating profitability after the restructure is completed. As a consequence of today’s announcements, PaperlinX is no longer in discussions with any third parties in relation to a whole company proposal,” he says.
Despite the sweeping structural changes, PaperlinX does not expect to see an immediate profit return to its balance sheets, with the company warning investors that the ongoing restructuring costs and difficult trading conditions will most likely lead to a full year loss before interest and taxation of approximately A$138 million for the full financial year, with an estimated A$171 million loss after tax.
In a bid combat continued market weakness and declines of up to 40 per cent in its core commercial printer paper supply business, PaperlinX says it intends to ‘recalibrate’ its ratio of diversified products to core products.
The company says it will focus on continuing to grow its Diversified Products division, which now accounts for around 17 per cent of PaperlinX’s total revenue and 23 per cent of gross profits. At the same time, the company will ‘reduce substantially’ the costs to service the core paper businesses.