Paperlinx Benelux has joined the UK business in administration after the embattled paper merchant failed to sell it before its financier’s April 15 deadline.
At the same time Paperlinx has lifted its trading halt on the ASX after almost three weeks, with shares jumping 53 per cent from 1.7c to 2.6c, as investors appear to expect better performance without the company’s two worst markets weighing it down.
Chief executive Andy Preece says just like Paperlinx UK, entering administration is now the only way forward, despite exhaustive efforts to sell the Belgium and Netherlands business.
“When it became clear that the business could not be sold as a going concern and with the pending withdrawal of the ING Dutch financing facility, the local directors had no choice but to request the court to commence an administration process,” he says.
“We deeply regret the impact this will have on employees and all stakeholders… but given the circumstances, the commencement of this administration process was the only option.”
As far as the Australian operation goes, Preece says the local Spicers business – the country’s biggest paper merchant – is profitable and completely insulated from the dire European situation.
ING withdrew receivables financing for the UK business over a breach of loan conditions on April 1, but gave a two-week extension for Benelux while Paperlinx tried to find a buyer.
The Benelux business has about 375 staff, many of whom will almost certainly lose their jobs as occured when administrators from Delloite took over the UK operation.
[Related: The ups and downs of Paperlinx]
Preece says the substantial ongoing operating losses due to declining revenues and falling profit margins from lower demand for paper in the Benelux region led to its collapse.
Other factors include challenges in restructuring, the tightening of supplier payment terms following withdrawals of trade credit insurance, and the flow on impact of the UK administration.
European sales plummeted 15 per cent to $884m in the half-year report, while pre-tax losses jumped 94 per cent to $50.7m, and EBIT losses were 14 per cent worse at $21.35m.
The company said this was because some major mills have started selling directly to its customers at ‘unsustainably low prices’ and competing with merchants for the same business with aggressive price cuts.
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Preece says there have been problems in Europe for some time and many repeated attempts to restore profitability have failed.
“Paperlinx has over the past five financial years, invested substantial funds into the restructuring of the European operations, particularly in the Benelux and the UK; however it has unfortunately not been possible to effect a turnaround in performance,” he says.
“It is therefore no longer in the company’s best interests to continue funding significant restructuring initiatives in the region or to support ongoing trading losses.”
In the clearest indication yet that Paperlinx is trying to get out of Europe entirely, Preece says the company is ‘continuing to progress the sales or realisations process’ of its subsidiaries in Austria, Czech Republic, Denmark, Germany, Ireland, Poland, and Spain.
Paperlinx would not get any cash from the sale of any of its businesses, as it would all stay with the sold-off business under the buyer, presumably to pay off creditors.
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