Paper merchant PaperlinX gave us an example of two factors yesterday for investors to be wary of.
One, it reported the expected huge loss on the last day allowable for June 30 trading companies, and the second was the market’s bidding up the shares by 3.5c, or more than 5% on the day to 69c, on the hope that all the bad news is now out in the market and there are no more shocks to come.
That the rise also came on a day when the market opened strongly, then finished weakly as the Chinese stockmarket dropped a nasty 6.7%, was another positive for the company.
PaperlinX’s near $800 million loss for the year ($798.2 million) and decision not to pay a final dividend were well anticipated, indeed flagged by the company in earlier updates. So it didn’t come as a shock.
The huge loss compares to a profit of $72.2 million in 2008 financial year.
PaperlinX’s loss was affected by impairment charges, a loss on the sale of its Australian paper operation, and related restructuring costs totalling $727.9 million.
The company said results had been affected also by the weak operating environment, foreign exchange losses mainly in the first half, one-off restructuring costs and increased finance costs and charges.
"The 2009 financial year was particularly challenging," PaperlinX said in a statement in a statement to the ASX yesterday.
"The global financial crisis and its impact on business and consumer confidence had a severe impact on volumes in the paper industry leading to unprecedented falls in the second half.
"Along with this, the paper supply chain lost confidence and all participants reduced inventory at the same time.
"A breach of banking covenants resulted in significant fees charged by lenders and their advisors, along with increased margins and fees related to the granting of waivers for those breaches.
"Total costs in 2009 were $68.9 million, including a $25 million make whole fee incurred on the paydown of the US Private Placement notes," the company said.
"An unprecedented deterioration in global paper demand reduced volumes in our key markets by 15-20% in the second half.
"We are now realising the full year effect of cost reductions taken over the past year,” the company said.
“While the first half of 2010 will remain tough coming off a weak second half of 2009, it will see the net benefits from cost reductions already made.
"The improving consumer and economic sentiment seen in our major markets has yet to be reflected in a lift in demand in these markets.”
"Given the company’s circumstances, senior management have volunteered to receive no cash payment under the short term incentive plan for 2008/09 even where agreed performance targets had been met or exceeded," the company said..
"Likewise, there will be no increase in employee salaries including executive remuneration and non-executive director fees in 2009/10, with the exception of increases required to be paid under industrial awards or agreements.
"As at 30 June 2009, PaperlinX had 7,199 employees, down 23.1% on 2008. Adjusting for the sale of Australian Paper (excluding Tasmanian operations) the reduction in head count over the year was 8.1% (632).
"Of our employees 15.7% are in Australia, New Zealand and Asia, 65.3% in Europe and 19.0% in North America. Around 93 % of employees are in Merchanting, 6% in Manufacturing and less than 1% are in the Group Office."
Nice to see some of the pain being shared.
