Redundancies. Are they 2% or 17% in Europe?

Posted June 30, 2012                                                                 Twitter: @PaperlinXsuX

suX: "Unfortunately for management, objective measures of performance never change". See why and how to measure below.

Allen: "less than 2% of our workforce will be affected"

PrintWeek UK - June 29, 2012

Melbourne - June 27, 2012

1000 Paperlinx jobs to go as demand dwindles

Question of interest to investors and employees alike: Is it 2% or 17% or are we dealing in semantics; meaning 2% now and 17% by June 2014?

If PPX employees only read the popular press, those in Melbourne would be fearful when there is no reason to be; and those in the UK may be enjoying a false sense of comfort. 

In the Herald Sun report, in small type under the Reflex pack: "Paperlinx says increasing use of email and the internet has continued to hurt the business".

Wow! This breaking news has been reported by Post Offices worldwide for years. 

As usual, there's always a scapegoat beyond PPX. There's been weakening demand for paper for years, or doesn't anyone read the Chairman's Addresses in the Annual Reports? 

Other UK merchants make money in this climate, see their smiling faces here.

The reason PPX UK doesn't make money, despite a 50% market share, is:

because of inefficiencies

because of excessive headcount 

because of poor management. 

This is unfair on investors and employees alike.

If anyone cares to research facts instead of glib releases in the trade press, may I recommend 4 Years of Hubris as a starting point.

This is a history of PPX from the announcement of its demerger from Amcor on Feb 17, 2000, until Tom Park's appointment on Feb 1, 2004 - the Wightwick years.

It is a precis of 33 references to source documents, all of which are are ASX announcement except for three - ie Company facts published in ASX releases and not my opinion.

For each acquisition in 2001-2003, a sales per employee figure is highlighted in red. For example, when Coast Paper was acquired in 2001, it had sales per employee of $921K pa.

In 2011, the PPX Global equivalent figure was $753K, 10 years and umpteen restructures later!

It logically follows that PPX bought Coast because it was profitable because it was efficient. PPX today is financially stuffed because it's inefficient. 

Another example from your figures of July 4, 2011 - 1,760 employees and £750 million sales in 2011 which is £426K or AUD 660K per employee pa through FY2011, using 1.55 average conversion. 

The average PPX UK employee in FY2011 produced AUD 93K less than the average PPX Global employee, or 12.5%. 

Alternatively, I've heard AUD 1 million per employee as being necessary and achievable which suggests the UK was over staffed by 587 in FY2011. 

The same report advised: "A statement from the company said that the move was 'expected to reduce overall headcount across the three businesses, although at this stage no numbers have been confirmed'." 

I read into that statement that management of PPX UK didn't know that it didn't know, or if it did know was too afraid to spell it out to the troops. Is there a third possibility?

Headcount is a damning indictment of Toby Marchant, and those who have reported to him since 2003. It's even more damning of those to whom Toby reported - PPX boards over the years. I realise this doesn't leave many "good guys" but someone has to state the bleeding obvious.

In Putting lipstick on pig posted on June 4, I said:
    

1. the imminent review, due before 30 June, will be nothing more than putting lipstick on a pig (got that right);
        
2. PaperlinhX could go bust sooner than most will admit (last minute sale of US operations doesn't solve the problem, it merely defers the problem); 
       
3. the demise of Hastie Group was a predictable, and predicted by some, despite what Harry Boon still says (no change);
      
4. PaperlinX's core problem is the same as Hastie Group's, and unsurprisingly had the same origins see Hubris & Global Paper Merchanting at PPX - a textbook case of PRIDE COMES BEFORE A FALL; 
       
5. PaperlinX needs to shed about 1,200 employees (it appears we now generally agree); and
       
6. One objective measure reveals the truth about PPX and cannot be hidden or glossed over (unfortunately for management, objective measures of performance never change). 

Persons unfamiliar with ROE concepts may wish to read about it here. 

Four important matters for the attention Dave Allen.

Item #1 There is an obvious conflict between your 2% and the 935 (17%) in the Strategic Review. I publicly called for 1,200 redundancies well before release of the Strategic Review, which included the Italian and US operations as I was using 2011 figures.

So we are both talking similar ball park numbers; in fact your figures are actually more savage than mine as surely Italy + USA had more than 265 employees.

Why then the headline of 2%? Why publish "soft" figures in the UK trade press when the board is publishing "hard" figures in the OZ financial press? Your employees are able to read as much as I do; and UK readership of this blog is disproportionately high by any measure. 

Item #2 In the report published in today's PrintWeek, you were initially reported in the third last para as saying:

"The losses are a result of ongoing global restructuring but the corporate and local results are very different. In the UK, we continue to trade profitably and this restructure would enhance that for a promising future". 

This was later amended to just: 

"In the UK, we continue to trade profitably and this restructure would enhance that for a promising future".

I understand why this was changed.

Anyway, is this amended statement one that investors may rely upon and covered by your PI policies? 

I don't expect you to respond publicly, however for the avoidance of ambiguity I invite you to write to me directly as I believe your statement is incorrect.

Item #3 "The company has also restructured its balance sheet with regards to intercompany loans between its Australian and UK subsidiaries. This, combined with the sale of both its Italian and US businesses to raise cash, has ensured a solid financial base on which to plan the company’s future growth, according to Allen". 

This sounds plausible, as a piece of prose, but ...

PPX has consistently demonstrated that it cannot run at a profit, and nothing I read in the purported "strategic" review convinces me otherwise.

PPX hasn't made a satisfactory return on equity (ROE%) for so long, revisit objective measure, that the only honourable thing to do, for investors and staff, is to retain this cash and sell off ALL businesses to others who may run them profitably. 

That is the only certain way for staff to have clarity about their futures and investors to salvage something from the wreckage of $2 Bn of market cap dissipated over eight years due to similar unsupported feelgood statements. Otherwise I conclude that PaperlinX is being run for the benefit of persons other than shareholders.

Oh, how arrogant of me. Kindly read these comments of Ian Wightwick of Aug 16, 2002, or the precis under 4 Years of Hubris then convince me that you are right and I'm wrong. 

The PPX model was flawed then, in 2002, and has been so ever since. 

Item #4 Continuous disclosure and prudential behaviour

By selling businesses I don't mean doing last minute deals like CNG. Whichever way an outsider looks at it, this deal has an odour.

A $76 million transaction is expected to take effect today, June 30, while the market first heard about it on Tuesday, June 26! That seems very odd. 

Either:

• There was lack of continuous disclosure - suX heard the rumour at least 3-4 weeks ago, and the dogs were barking late last week from identified credible sources who appear independent. All along the market was apparently uninformed; OR
        
• PPX realised a poor price as a desperate vendor (June 30 deadline) negotiating with a very strong purchaser. 

I'm sure the boys and girls at Scoresby will have an answer, like profound silence, however higher authorities hold greater powers of demand. 

Summary

I read every word published by or written about PaperlinX. I enjoy a network of supporters who surprisingly aren't all disaffected ex employees. 

The Company purports to encourage dialogue but that's far from reality. Is 24 days a reasonable period not to respond to a simple question about a serious matter of governance?

This forces a direct or activist approach which offends some; however the greater offence is how senior executives of PPX have lost $2 Bn in eight years and were paid handsomely to do so.

Despite what some folk say, my campaign isn't personal. My sole interest is obtaining a satisfactory return on investment.

If others take these matters personally then maybe they are unsuited for the high office they hold.  I hope to hear from you about Item #2.