Less than a week after revealing unexpected losses of around $23 million because of a currency option, PaperlinX has revealed overhead cuts of around $15 million by restructuring its head office.
The company told the ASX yesterday that it will move its chief executive to its operational headquarters in the UK and close its office in Amsterdam to cut costs and simplify its corporate structure.
"Together with recent staff reductions at the Corporate Head Office in Melbourne, the closure of the Amsterdam office will result in ongoing cost savings of approximately A$15 million per annum and will be cost neutral in the current financial year.
"The new arrangements will involve the 2 European regions reporting directly to the CEO and CFO, who will be based at the Operational Head Office in the UK. There are no plans to change PaperlinX’s domicile out of Australia," the company said.
PaperlinX CEO, Toby Marchant said in the statement, "This move is consistent with our stated objective of creating a simpler and more cost efficient head office environment with fewer centres and fewer layers.
"The relocation of the CEO and CFO from Australia to the UK brings our senior management closer to the geographic centre of our operations, given that nearly 70% of our business is in Europe and 90% is in the Northern hemisphere."
Last week the company told the ASX about the surprise loss.
"PaperlinX previously advised that in December 2009 it purchased a currency option to hedge the downside foreign exchange exposure of an intercompany loan. The option costing A$18m (pre tax) and covering the period to June 2012 was entered into following the closure of a cross currency swap. After deducting the A$18m cost of the option, A$56m in cash was released and used to fund the closure of the Company’s loss making Tasmanian operations.
"Replacing the swap with an option allowed the benefit of the large gain on the swap to be locked in at a fixed cost whilst appropriately mitigating the foreign exchange risk on the loan.
"As advised in December 2009, to comply with accounting standards, the option is treated differently to the cross currency swap, in that any variations in the time value portion of its mark to market valuation are included in reported earnings potentially creating additional volatility in earnings, although the cash cost of the option is fixed at A$18m.
"PaperlinX commenced accounting for the option in December 2009 and recorded a valuation gain of A$3.7m in the July/December 2009 result and a valuation loss of A$3.7m in January/June 2010.
"However, as a result of the strength of the $A at December 2010 the non cash impact of the option at December 2010 is expected to be a valuation loss of approximately A$23m pre tax (A$17m post tax). As a result of this valuation loss the statutory reported result for the 6 months to 31 December 2010 is expected to be a loss. However underlying earnings (which will exclude the valuation loss of the option) are expected to be positive and meaningfully ahead of underlying earnings for the prior corresponding period.
"The accounting valuation of the option will continue to fluctuate during the period to June 2012," the company said.
PaperlinX said it will release its half year results to the ASX on 24 February 2011.
Paperlinx shares fell 1c to 45c.
