Posted August 30, 2012 Twitter: @PaperlinXsuX
suX was recently advised by reliable sources (plural) that PPX UK looks like taking a really big hit at Aldersons, certainly north of GBP 1 million.
Insurance cover is still unconfirmed.
PrintWeek UK is now full of Aldersons; which is why suX now feels comfortable raising this matter. One kind supporter set this extract from PrintWeek:
“Here we are the day after the bank holiday, and 800+comments on Aldersons problems, to the economist-market analyst, Paperlinxs are in as a major creditor, according to inside info, the value of total paper debt is possible 25% of the turnover quoted !! certainly lets hope for all suppliers they at least get 80% back fom there insurers, the sad part is they to supply were beaten down by the printer to a gross margin circa 2-3% is it worth it??? as the risk is always there,.
Paper merchants need to get back to decent margins and Printers must not take work on below cost. it aint worth it”
Back to basics
suX holds old fashioned views about business. If you cannot make an acceptable return on equity, either:
Back to credit and bad debts - an idea!
Hypothetically, just imagine that if from tomorrow PPX had a net cash price ex store for a commonly used product of $1,000 per whatever unit of measurement is applicable.
This is the price at which PaperlinX can happily sell paper all day long and never have a bad debt, can sell off Delivery Co and negotiate better trading terms with its suppliers because it has massive free cash flow. It is a highly competitive "raw" or unbundled price.
NOT POSSIBLE? Well actually it is. The supermarkets do it worldwide. Has anyone bought groceries on credit or had free home delivery recently? They screw their suppliers for 90 day terms, or massive discounts for 7 days. They even get free cash flow from VAT/GST collections made today and remitted on average, in OZ at least, 35 days later.
The hypothetical $1,000 per unit net cash price ex store.
Credit beyond a token amount, say $5,000, is granted only if secured by a debenture charge over a company, or like security for other business structures, and guarantees from all related entities and shareholders and directors.
Delivery costs are fixed, published and reviewed half yearly. Something like the postal parcel service. Non-negotiable.
NOT POSSIBLE?
It's noted that recently in Australia the sales are down due to credit concerns. This is applauded.
Too harsh? "Most of the problems at PaperlinX aren't those trotted out by senior management but what lies between their ears."
One source suggested it was low margin business too!
Someone deserves to be fired over this.
HERE suX outlines a new, possibly revolutionary, approach to UK paper merchanting which would solve the bad debt problem for PaperlinX. It's based upon seven thoughts:
Someone deserves to be fired over this.
HERE suX outlines a new, possibly revolutionary, approach to UK paper merchanting which would solve the bad debt problem for PaperlinX. It's based upon seven thoughts:
- Credit insurance is an unnecessary cost because its an abrogation of responsibility for one of the key functions of every business - getting paid. It's akin to investment schemes that rely on tax benefits rather than cash flow;
- It's in everyone's interests to have stable profitable paper merchanting, especially the mills;
- Paper merchants are their own worst enemies as they hold only one market advantage, exclusive supply rights granted by the paper mills;
- Radical change can only be initiated by a market leader. All commodity markets confirm this;
- Most commodities are sold on an unbundled cost basis. The only reason why China buys more iron ore from Western Australia than Brazil is because the former is closer to China. Paper is a commodity. Printing is rapidly becoming commoditized;
- Private financial analysis undertaken on behalf of OZ PXUPA investors showing what happened to PaperlinX's profits when management lost control over its receivables and stock; and
- Most of the problems at PaperlinX aren't those trotted out by senior management but what lies between their ears.
PrintWeek UK is now full of Aldersons; which is why suX now feels comfortable raising this matter. One kind supporter set this extract from PrintWeek:
“Here we are the day after the bank holiday, and 800+comments on Aldersons problems, to the economist-market analyst, Paperlinxs are in as a major creditor, according to inside info, the value of total paper debt is possible 25% of the turnover quoted !! certainly lets hope for all suppliers they at least get 80% back fom there insurers, the sad part is they to supply were beaten down by the printer to a gross margin circa 2-3% is it worth it??? as the risk is always there,.
Paper merchants need to get back to decent margins and Printers must not take work on below cost. it aint worth it”
Back to basics
suX holds old fashioned views about business. If you cannot make an acceptable return on equity, either:
- find a way, not a wish; or
- exit the business.
The problem at PaperlinX is that the latter means management would lose their cushy jobs. Bad luck.
PaperlinX allegedly holds circa 50% of the UK paper market and still gets screwed around on deals like Aldersons. It's very poor management in the UK that permits this to occur.
There are few defined cost areas in paper merchanting:
PaperlinX allegedly holds circa 50% of the UK paper market and still gets screwed around on deals like Aldersons. It's very poor management in the UK that permits this to occur.
There are few defined cost areas in paper merchanting:
COGS - PPX should hold advantages here but maybe not due to mills having to insure sales to PPX.
LOCAL OVERHEADS - this is where the independents are beating PPX day in and day out, and will continue to do so while ever remnants of the Marchant tribe exist.
CREDIT - granting credit has three elements of cost; time/value cost of money, bad debts and as a last resort, credit insurance.
DISTRIBUTION - For reasons I've had explained to me many times but still cannot grasp; a delivery of fine paper in many parts of the PaperlinX world is faster than blood plasma. Go figure. It's mainly "old timers" or those who lay claim to successes through winning by over-servicing.
If anyone cares to examine the accounts of Delivery Co, which suX has done elsewhere, you'll see how much is being lost on this lemon.
Shiny trucks and shoddy outcomes. Toys for boys.
GLOBAL OVERHEADS - PaperlinX carries the added burden of regional and ASX overheads. These are substantial. Now readers may now understand why suX was so opposed to the Milton Mausoleum. The Rhodes Scholar of paper merchanting decided his beast of burden could carry one more load.
Any director who signed off on Milton Keynes is an irresponsible fool. Go on, sue me for that!
Back to credit and bad debts - an idea!
Hypothetically, just imagine that if from tomorrow PPX had a net cash price ex store for a commonly used product of $1,000 per whatever unit of measurement is applicable.
This is the price at which PaperlinX can happily sell paper all day long and never have a bad debt, can sell off Delivery Co and negotiate better trading terms with its suppliers because it has massive free cash flow. It is a highly competitive "raw" or unbundled price.
NOT POSSIBLE? Well actually it is. The supermarkets do it worldwide. Has anyone bought groceries on credit or had free home delivery recently? They screw their suppliers for 90 day terms, or massive discounts for 7 days. They even get free cash flow from VAT/GST collections made today and remitted on average, in OZ at least, 35 days later.
The hypothetical $1,000 per unit net cash price ex store.
Credit beyond a token amount, say $5,000, is granted only if secured by a debenture charge over a company, or like security for other business structures, and guarantees from all related entities and shareholders and directors.
No security and guarantees, no credit. Non-negotiable.
Interest is charged on a daily basis on all credit from date of supply to receipt of cleared funds. This is the banking side of paper merchanting redefined. Suggested cost 20% pa on a daily basis.
Interest is charged on a daily basis on all credit from date of supply to receipt of cleared funds. This is the banking side of paper merchanting redefined. Suggested cost 20% pa on a daily basis.
Rigorous credit management gives each client a credit limit based on a serious half yearly review of their accounts, etc; just like a banker runs a commercial loan book.
Delivery costs are fixed, published and reviewed half yearly. Something like the postal parcel service. Non-negotiable.
NOT POSSIBLE?
Before dismissing the idea, there is one point of negotiability, the raw price based on volume or mill rebates or those types of factors. Again, just like the supermarkets do.
No one knows if it would work and I haven't seen any banking credentials within the ranks of senior PaperlinX executive so their opinion isn't relevant. Their record speaks for itself. I'm tossing around ideas to reflect a new way of selling paper at competitive prices without going broke.
What is apparent is that if every buyer of paper found these terms repugnant, which is their right, who will supply them? EBB may pick up some as will Premier and Antalis. But their resources are finite and all the while this tantalising $1,000 per unit net cash price ex store is available at PaperlinX.
Implementation - voluntary led by PPX. It needs to be implemented abruptly. To do so otherwise would allow the other merchants to slowly increase their capabilities. Would it send some printers broke? Maybe, but they're the same ones who'll go broke eventually and leave suppliers with bad debts.
Implementation - forced upon the paper merchants.What if credit insurance become prohibitively expensive? Unlike equity investors, credit insurers aren't fools. The industry may effectively withdraw from insuring printers overnight. Tim Elliott would have the last laugh.
High Risk? Not compared with the "me too" approach which has cost the owners of PaperlinX circa $2 Bn in market cap in 8-9 years.
What is apparent is that if every buyer of paper found these terms repugnant, which is their right, who will supply them? EBB may pick up some as will Premier and Antalis. But their resources are finite and all the while this tantalising $1,000 per unit net cash price ex store is available at PaperlinX.
Implementation - voluntary led by PPX. It needs to be implemented abruptly. To do so otherwise would allow the other merchants to slowly increase their capabilities. Would it send some printers broke? Maybe, but they're the same ones who'll go broke eventually and leave suppliers with bad debts.
Implementation - forced upon the paper merchants.What if credit insurance become prohibitively expensive? Unlike equity investors, credit insurers aren't fools. The industry may effectively withdraw from insuring printers overnight. Tim Elliott would have the last laugh.
High Risk? Not compared with the "me too" approach which has cost the owners of PaperlinX circa $2 Bn in market cap in 8-9 years.
Too radical? Maybe, but it might work as compared with the nonsense trotted out by Toby Marchant et al. If it doesn't work, close down or sell out. No more "L" platers at Northampton, thank you.
Before dismissing this idea, read what the incoming NAPM president said. Check the three bullet points on page 2, here.
It's noted that recently in Australia the sales are down due to credit concerns. This is applauded.
Too harsh? "Most of the problems at PaperlinX aren't those trotted out by senior management but what lies between their ears."
Look to the comments by Dave Allen on page 6 here.
Dave Allen is a genius: "We are exiting from customers who are low margin or high cost to serve." We flew you half way around the world to hear you say this!
Dave: What the "f" have you been doing for the past six years? This is something engaged management does on a continuous basis; or is it that now that the money is almost all gone you start at Business Basics 101.
Then you want to diversify away from "core excellence" into new fields of business. You lack credibility.
EBIT Analysis 2007-2012 by region
Here's a clue. Do the hard work and analyse the figures of the independents and check their EBIT, noting they don't have the regional or ASX overheads to carry.
IMO, and after hearing many well meaning and constructive comments; PaperlinX needs to radically change how it does business.
