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Market passes verdict on Park time at PaperlinX

Tuesday, 26 October 2010
By Print 21 Online Article

The departure of Thomas Park as CEO of the much reduced paper company brought little relief to beleaguered shareholders with share prices still at historic rock bottom lows.

The destruction of shareholder value accelerated in the last 18 months of Park’s seven-year tenure with over $100 million paid out in financial penalties and advisor fees. The share price continues to languish below fifty cents, a long way from the $3.50 mark it averaged on his appointment.

It has been a torrid time for Park, although there is little evidence of innovative solutions to the prevailing problems in the paper industry. The company is now a shadow of its former self.

PaperlinX has now exited its Australian paper manufacturing role completely and is increasingly looking towards businesses other than paper merchanting for substantial growth. Already activities such as the graphics supply business, IMEDIA, are contributing 19% of revenue. The aim is to grow the diversified businesses to achieve 30% of gross profit margins.

This year PaperlinX is booking an operating loss of $23.5 million in its annual report, part of an after tax loss of $225 million, much of which is down to the closure costs of the Tasmanian mills.

The global paper merchant is now mainly aligned towards the UK and European markets that account for two-thirds of revenue; 20% comes from the US and 10% from Australia.

Although still nominally an Australian company– it is listed on the ASX – the new CEO, Toby Marchant, is head of the UK business and will continue to reside in England. In a telling statistic, the total complement at the Australian head office is now down to 35 from over 90 people a few years ago. Park predicts that by January next year corporate labour costs will have been halved since the sale of Australian Paper.

Looking forward, the best that can be offered shareholders is that debt has been reduced but that volumes will stabilize at a lower level. This is in light of the overall volume decline of about 20% over the past two years. In 2010 the volume decline was 214,000 tonnes.

Park leaves PaperlinX in flux, with most of the board recently departed along with many experienced executives. How the local company, the largest paper merchant in the region, will fare as a branch of the new UK-centric operation, remains to be seen.

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