The decision to close the machine follows a comprehensive review of Australian Paper’s domestic customer requirements, extensive trials at the Maryvale Mill and an analysis of the financial outcomes flowing from the review and the trials.
Over 100 employees will lose their jobs in the closure, including 98 production roles and 21 maintenance contractor positions.
The company will take a pre tax charge of approximately $15m for the closure, including generous redundancy packages as well as out placement and retraining opportunities for affected employees. The closure is forecast to deliver significant savings for Australian Paper and will be earnings positive in 2007.
Australian Paper’s COO, David Goldthorp, says the move will strengthen Australian Paper’s competitive position by capacity balancing across its four paper mills while retaining the company’s position as Australia’s leading producer of printing and writing paper. Unprofitable exports will decrease with a 40,000 tonnes reduction in overall capacity, while domestic sales will be unaffected.
“Ongoing competition from imports, increasing fuel and distribution costs and a strong Australian dollar has placed Australian Paper under significant pressure,” explains Goldthorp.
“Today, Australian Paper’s Communication Papers business reported a loss for our first half results for 2006. To enable the company to retain a sustainable manufacturing presence in Australia the decision to close the number one paper machine has been unavoidable. The company has maintained ongoing communication with employees and unions throughout the process and I would like to thank them for their cooperation.
“Over the past 12 months, the company has announced a number of operational actions, including the pulp mill upgrade at Maryvale and investment in growth areas such as our brands, to improve profitability and return Australian Paper’s business to its target return on average funds employed over time.
The closure of the Shoalhaven paper machine number one will take several weeks with operations expected to cease in the June quarter. Shoalhaven Mill will continue to service the specialty paper market in Australia through the operation of machines two and three.
PaperlinX’s profit after tax for the six months ended December 31, 2005, of $35.3m compared with $30.2m for the six months ended 30 June 2005, and $59.5m (before the benefit of Australian Tax Consolidation (ATC)) for the same period last year.
PaperlinX CEO Tom Park says the result is as expected in a depressed market environment where the coincident factors of price, volume and the ability to recover input cost increases in manufacturing have all tracked negatively.
“We are continuing to make progress on those key areas under our control,” says Park. “Earnings from our global paper merchanting business have partially offset the significant decline in profitability at Australian Paper and helped maintain our position in the top quartile of global paper company returns.
“We are seeing signs that our strategy to strengthen existing businesses and leverage our global merchanting position is bearing fruit, with a range of recently announced initiatives expected to deliver a sustainable net benefit to operating profit of over $100m per annum in 2009, building from a net benefit of over $35m in 2007.
“The merchanting business continues to be the growth engine for PaperlinX. It has partially insulated us from the downturn in our Australian manufacturing business, and we will look to expand this business further in markets where there are potential consolidation benefits.”
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