Jun 29, 2012

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"

Melbourne - June 27, 2012

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.

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. 


  • 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. 


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.

Mike McConnell on day 24

Posted June 29, 2012                                                    Twitter: @PaperlinXsuX

The question is simple.

Is Mike McConnell a director of PaperlinX?

YES or NO.


Unanswered request lodged in writing on June 05, 2012

Last drinks, Mike.

PPX price manipulated to close FY @ 5.7¢

Posted June 29, 2012 @ 5 pm                                         Twitter: @PaperlinXsuX
PPX miraculously closes +1.8% today.

It means PPX won't appear in analysts' commentaries about closing out FY 2011/12 at another all time low. History will show +0.001¢ or +1.8% for the day. 

If you believe this closing price, there is no cure available.

It cannot be directors' buying because they are in a blackout period. Who else would be interested in an artificial EOY close for PPX? Time will tell.

Price plunge as PPX hits 5 cents clearly ruffled some feathers earlier today?

I'll try harder next year.

Jun 28, 2012

Price plunge as PPX hits 5 cents

First time ever suX leads with an exhibit 
because 5¢
demands urgent board responses

Posted June 29, 2012  @  12 noon                                         Twitter: @PaperlinXsuX

Expect EGM2 soon.

We know that PPX isn't short of cash following the "sale" of US operations, so there isn't the risk of an imminent financial collapse like Hastie Group.

EOYF tax loss selling isn't left this late. Therefore it can only be a confidence issue. Mr Market isn't happy.

ASX (20 min delay) quote for PPX

ASX (20 min delay) chart for PPX

There are lots of unresolved questions and a few distasteful rumours circulating.

Update at 5 pm PPX price manipulated to close FY @ 5.7¢

Sale to CNG raises questions

It all seemed too hasty which implies lack of continuos disclosure and a poor realised price given an apparently desperate vendor (June 30 deadline) and a very strong purchaser. 

It doesn't make sense that nothing was announced by the Company before Tuesday morning, June 26, and even then it was released as part of the Strategic Review. 

The CNG $76 million transaction is expected to take effect today, Friday, June 29, while the market 
first heard about it on Tuesday, June 26! That seems very odd.

Yet suX had 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.

Why is Chris Creighton leaving?

People close to the action advise that these two successful graduates of the school of hard knocks, Price and Creighton, could turnaround PPX Europe and UK. 

Are they bothy available, don't know; although everyone has their price. Does Harry Boon want them is the better question.

Profile on Chris Creighton here. It's worth remembering that back in the early 1980s, Creighton was Price's boss at Spicers in Sydney. Both have gone on and done well from humble beginnings. Must be something to do with EQ.

The Strategic Review was a fizzer

Nine months in the making, for what? Rather than "strategic" it read more like a perfunctory ASX release, sans Toby Marchant. 

Two well respected financial journalists, both of whom are long time PaperlinX watchers, summed up the mood in OZ.

Tim Boreham, Criterion, The Australian
Ian McIlwraith, The Insider, Fairfax - SMH, The Age

Goldman Sachs gives PPX a sell rating 
post Strategic Review. Click here for SELL rating 

Is Toby Marchant refusing to budge?

Unless we see an announcement today, Harry will have to fire Marchant to save his own skin.

Harry Boon is acting like an executive chairman

Harry is everywhere, a sure sign of crisis. He's more involved than is healthy for a Chairman. Remember how he railed against this at EGM1. 

SuX hopes he is still properly discharging his responsibilities elsewhere.

Thunderous silence on Mike McConnell

Expect weasel words along these lines soon: 

"Mike McConnell has stepped down following completion of the sale to CNG, ... the board thanks Mike ...." 

It won't be "resigned" as there is nothing to resign from. This time weasel words wont work as too many interests are genuinely concerned about something old fashioned - governance.

This would be consistent with the board hanging tough on Mike McConnell, because it knew the CNG deal would happen.

Central Eastern Europe (CEE) has appeared on the suX radar

Students of rare coincidences ought to keep an eye on Heinzel / Europapier and PPX.

Heinzel is a competitor of PPX in CEE and significant but not substantial (meaning less than 5%) shareholder in PPX. The "significant" holding is reported to be well in excess of Harry Boon's margin of 1.8% at EGM1.

Happy New Year!

Same again, Harry?

"Losing heads in the paperless revolution" by Tim Boreham

Posted June 28, 2012                                                                   Twitter: @PaperlinXsuX

IT'S open season for "strategy" or "transformational" reviews that involve little vision but lots of sackings and management waffle.
Tim Boreham, Criterion, The Australian - June 27, 2012

This opening comment sums up the OZ reaction to the Strategic Review that apparently Toby Marchant and UBS have been toiling over since September 2011; yet it was delivered by the soon to be departing James Orr with a solitary comment by Harry Boon. 

Rather than "strategic" it read more like a perfunctory ASX release, sans Toby Marchant.

Below is the full text of Tim Boreham's  Losing heads in the paperless revolution
published in The Australian yesterday. 

A quote to warm your interest:

For Paperlinx holders, patience has worn as thin as a sheet of 50-micron copying paper that can, in the wrong hands, deliver a lethal paper cut.

Boreham is a regular 
watcher of forestry and paper companies and has a nice turn of phrase, meaning he is knowledgeable and easy on the eyeballs. 

Other Boreham comments about PaperlinX include:

20120626 Tim Boreham - PaperlinX promises ring hollow despite strategic review

20100819 Tim Boreham - Serial underperformers_ PPX and PMP

20090901 Tim Boreham - Gunns (GNS) PaperlinX (PPX) Pulp and Paper


Losing heads in the paperless revolution
The Australian June 27, 2012

IT'S open season for "strategy" or "transformational" reviews that involve little vision but lots of sackings and management waffle.

As well as lopping heads, Paperlinx's review at least reflects on a seminal change: the paperless revolution is in train, with paper demand from commercial printers down 20-40 per cent over the past three years.
"Paper demand is expected to continue to decline by approximately 3-5 per cent per annum in most markets Paperlinx serves," the company says.
For Paperlinx holders, patience has worn as thin as a sheet of 50-micron copying paper that can, in the wrong hands, deliver a lethal paper cut.
And cuts are the order of the day as Paperlinx sells US operations Spicers US and Kelly Paper for $US76m ($75.9m).
Having chalked up a $20m first-half loss, the company now expects a full-year total reported loss of $171m. We last rated Paperlinx an avoid at 8.6c in October, after chairman Harry Boon promised "hidden good-news stories" in terms of market-share gains, reduced costs and price rises.
All we can say is the happy news remains well concealed.
Paperlinx has its debt under control and is still a big business revenue-wise, turning over $4 billion globally, suggesting there's scope for improvement.
But we've heard promises from Paperlinx since it demerged from Amcor and listed of hte stock exchange in 2000.
Our avoid call is maintained.

A new publisher about PaperlinX in OZ

Posted June 29, 2012                                                               Twitter: @PaperlinXsuX

Just for the record, suX isn't alone. There's another free spirit publishing about PaperlinX.

Only two articles to date; the first in April post EGM1 and this week post Strategic Review. 

With encouragement he may become more active.

Here is the

Jun 27, 2012

Mike McConnell day 23. Yes or No, the only answers.

Posted June 28, 2012                                                    Twitter: @PaperlinXsuX

The question is simple.

Is Mike McConnell a director of PaperlinX?

YES or NO.


Unanswered request lodged in writing on June 05, 2012

Back to owners' reality.

The Strategic Review excited Mr Market

Care for a stiff drink Mr Investor?
You look like you need one.

ASX (20 min delay) quote for PXUPA

Thought this was bad?

This is scary!

 ASX (20 min delay) quote for PPX


Goldman Sachs Update post Strategic Review

Posted June 28, 2012                                             Twitter: @PaperlinXsuX

Update from GS post Strategic Review here. 

also available by Macquarie and Goldman Sachs post Dec 2011 Accounts.

Goldman Sachs maintains its
SELL RATING. PPX is now totally friendless. 

PPX closed at a new all time low of 5.6 cents today, June 28.

This good news!

  • Maybe the board will finally accept that PPX is unloved because of its leadership.
  • Unquestionably, time is long past for Harry Boon and Toby Marchant to go. No more of your noblesse oblige is required, thank you.

Not yet.

Harry Boon in party mode 3 mths after EGM

Posted June 28, 2012                                                                  Twitter: @PaperlinXsuX

Looks like Harry's shout at PaperlinX's EOY party

The Strategic Review excited Mr Market

PPX investors go wild at EOY party 

What will it be next, Harry?

Why is Sequana's Share Price falling?

Posted June 28, 2012                                                             Twitter: @PaperlinXsuX

Summary of global print and paper industries. 

Here are comparative price charts over 5 years and 3 months for three major listed players versus ASX200.

PaperlinX, Heidelberg and Sequana are all trading at well below their GFC, March 2009, lows and at a fraction of their former highs. 

Note that as at late June, 2012, SEQ has lost 70% in three months.

Why has Sequana performed so poorly in the past three months? Feedback welcome.


PaperlinX writes it on the wall - it's bankers 1st

Posted June 27, 2012                                                         Twitter: @PaperlinXsuX

Below is the full text of Ian McIlwraith's piece appearing in the Fairfax press today, or see 
original here.

What do key activist shareholders think?

Andrew Price
issued a press release which really said nothing. He doesn't have to say anything. PaperlinX is quiet capable of making its own negative headlines.

Allan Gray, formerly Orbis Investment Management, which owns 18.29 per cent of PaperlinX:

“The board must live and die by how they use the incremental dollar,”
Allan Gray analyst Simon Mawhinney said.

SuX suspects this is the public view of All Gray. In private, I'm sure the conversation was far more robust and specific given its MD Simon Marais has publicly called for Toby Marchant's head. 

Does anyone really expect the largest single shareholder to simply hang around while Toby spends the money? SuX expects that Price is biding his time. Anyone for four cents?

 Strategic Review screams bye bye Toby. 


PaperlinX writes it on the wall - it's bankers first

Ian McIlwraith 
Published: June 27, 2012 - 3:00AM

PAPERLINX has given its best sign yet that the company is being managed for its bankers first, and shareholders second, announcing that the sale of its US business had killed any lingering hopes investors might have had for a private equity takeover.

Insider wonders whether the ASX might pop the question to PaperlinX's board on whether it could have announced earlier to investors some of the details in yesterday's statement.

Long-suffering shareholders have nurtured a hope, increasingly faint, that the ''whole of company proposal'', pitched at 9¢ an ordinary share and $21.85 for preference stock by private equity group Platinum Capital, might still be alive.

Judging by yesterday's statement the concept was alive all the way until a deal was tied with US competitor Central National-Gotesman Inc: ''As a consequence of today's announcements, PaperlinX is no longer in discussions with any third parties.''

Somehow though, game buyers of the preference stock managed to push it up $1.19 to $9.35 - perhaps on the basis that the company exercised the ''step-up'' clause, which means the dividend rate is now fattened by 2.25 percentage points to the Bank Bill Swap Rate plus 4.65 per cent.

That is very nice in theoretical yield terms, but PaperlinX is not paying a distribution, and has given little sign of plans to do so.

PaperlinX also said the US sale was priced at 7.5 times earnings before interest, tax, depreciation and amortisation, which implies that the operation was making $US10.3 million this year. The company runs a North American division, which includes Canadian operations generating $C450 million of revenue and having 27 per cent of that market.

EBITDA for North America was $14.5 million in 2011, and PaperlinX's most profitable business, and for the December half made about $9.3 million of EBITDA - suggesting the US operation was holding its own in a tough world. Strategically, that means PaperlinX is jettisoning the good to pay the price of trying to fix the bad. While the European operations generate about three times the revenue of North America, they are also the big drag.

Insider wonders how that will play with the disenchanted shareholder group, led by Andrew Price, that tried unsuccessfully to roll chairman Harry Boon off the board in March. The remaining institutional investors, such as Allan Gray's Simon Marais, will no doubt be doing their own calculations on PaperlinX's numbers after yesterday.

The half of the US sale money that does not go to repaying bank debt will pretty much be absorbed in Europe's restructuring. On that note, PaperlinX tried to suggest it is undergoing hefty redundancy programs in Europe and, while it is appreciated that one job lost is significant if it is one's own, it seems odd that the head-count numbers being used date back two years.

It said the number of people to be ''disemployed'' will fall from 5435 in July 2010 to 4500 by July 2014 - not what Insider would judge a great achievement in cost-cutting.