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Cash crunch for PaperlinX in Europe triggers trading halt on ASX

Friday, 27 March 2015
By Patrick Howard

Paper company is in talks with European financiers about the likely breach of a banking agreement by one of its subsidiaries.

The cash flow problem was flagged in the company’s Interim report in February when PaperlinX Chairman, Robert Kaye, warned that a fall in European sales led to pressure being placed on our European lending covenants.  The European business, a long-time drag on the company’s otherwise relatively buoyant Asia Pacific operations, reported a loss of Aus$20.7 million (Euro154.9 M) for the six months to the end of December.

Despite continuing cost cutting that saw trading expenses down by 8.5%, the business continues to bleed cash triggering a potential crisis. PaperlinX successfully sold its Spicers Canada business and maintains the ensuing liquidity gives it sufficient time to continue a Strategic Review to decide the best way forward.

In the interim report Kaye said, “This is a disappointing result out of Europe. In December when we announced the Strategic Review the Board flagged it was taking a more cautious stance on the outlook for the European business and we had no choice but to consider the position regarding non-ANZA assets.

 “The sale of Spicers Canada provides liquidity into the Group to ensure the Strategic Review can continue and ultimately can deliver the best outcomes for shareholders.  The Review is progressing and we remain positive about the prospects of securing transactions with one or more interested parties in relation to our European businesses.”

The sale of the European assets is likely to be adversely affected if the company is in breach of its banking agreements. A firesale approach will obviously not be good for the bottom line. The disappointing result comes after many months of effort in Europe by former CEO, Andrew Price, who left suddenly earlier this year.

The trading halt is in force until start of business on Monday 30 March, or until PaperlinX makes an announcement to the market. New CEO, Andy Preece, is ever more likely to be running a smaller, more Australian/NZ-centric business in the near future.

This is no bad thing for the industry, if not all that good for shareholders. The local Spicers, our largest paper merchant, is well-run, profitable, with a diverse range of products, expanding outside its traditional paper sales. Once free of its entanglements in Europe it is likely to take off where it left off before being distracted by international ambition.

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