Whatever ultimately lies at the root of Paperlinx’s problems, the resulting fall-out has resulted in an event that is unprecedented in the history of the UK printing industry.
The business was until recently the UK’s largest merchanting group. And while its market share has dwindled at the same time as its problems were magnified, Paperlinx still carried out a huge amount of trade. Informed sources said the firm was probably handling around £40m worth of paper and printing supplies a month.
In fact, it seems that the way some of that business was handled has contributed to the firm’s travails. Tales of hugely inefficient deliveries of small, low-value orders are rife. “We did wonder, did anyone there actually know if they were making money or not?” wonders a source at one rival merchant. And then there is the matter of credit control.
“I have been observing Paperlinx for years, and their credit control was the worst. They were absolutely hopeless at getting the money in,” says William Martin, the managing director at Aston Colour Press in Twickenham. “I pay my suppliers promptly at the end of the month. I’d have the money ready for Paperlinx and they wouldn’t even ask. Other merchants would be straight on the phone, whereas they were giving me 90 days credit without me wanting it or asking for it.”
Now, almost 700 Paperlinx staff are abruptly out of a job, with a question mark over the future for the remaining circa 500 employees. Their prospects will depend on how successful administrators at Deloitte are in finding a buyer, or buyers, for the rump of the business.
There is universal across-the board empathy for the employees' situation from all corners of the industry.
Other fall-out from this sorry tale will include a creditors’ list that is bound to come with a health warning, and yet more industry pension schemes heading for the Pension Protection Fund. The deficit in the Robert Horne and Howard Smith schemes totalled £83.3m, but some estimates believe that figure will be well in excess of £100m when the final valuations come in.
For printers up and down the country, the more immediate issue is continuity of supply. Only those with memories long enough to stretch back to the paper shortages of the 1970s will have an inkling of just how bad things could get.
The good news is that other merchants have for a long while now been making contingency plans for various scenarios involving the failure of all or part of Paperlinx – even for such an extreme happening as this month’s sudden closures. The bad news is, while paper may be readily available, credit lines may not.
Antalis is now the country’s biggest single merchant. Managing director David Hunter explains the firm’s position. “It’s a new world and we all have to do our best in the coming weeks. We tried to plan for all eventualities – a sudden stop, a pre-pack, or an orderly exit. What has happened is at the extreme end, a rapid stop.
“We are hell-bent on maintaining service levels, especially for loyal customers who’ve been with us for years. But we are willing to take on new customers as well.”
However, Hunter warns that there will inevitably be a shortage of credit on the side of printers. “Printers had a line of credit with Paperlinx, and that has now disappeared. The big challenge is going to be the availability of credit.”
How credit insurers view this unfolding situation is going to be crucial to the mix. Mike Gee, managing director of Denmaur, also highlights credit as a major issue. “If someone had a £500,000 limit with us, and £250,000 with Paperlinx, that’s not going to just transfer over. This is going to make credit insurers even more nervous – weaker printers may struggle with supply.
“Printers are going to have to escalate payments if they want more paper. Trading terms may tighten,” he notes. “It’s important for printers to have an early dialogue with merchants about their commercial and financial position, and it’s wise to pay bills on time.”
EBB chairman Tim Elliott echoes this sentiment. “On credit lines, printers must be prepared to talk openly and honestly with us. Other merchants will all use credit insurance whereas we at EBB don’t.”
And Mario di Lieto, managing director at Stora Enso-owned Lumi Paper, also warns on cashflow and credit. “There will be a bottleneck caused by the availability of credit insurance,” he states. “Printers are going to have to start looking at payment days. They will have to re-work their cashflow.”
The overwhelming view is that any printer that has been relying on its former supplier’s long payment terms is going to have to reassess their numbers, sharpish.
We don’t yet know whether the Paperlinx fall-out will result in “an absolute maelstrom and a chaotic period” as one senior paper executive has predicted, or some relatively minor supply issues in the short-to-medium term.
‘Don’t panic’ is the message from merchants. “We are working with mills to ensure disruption is kept to a minimum. Balance will be achieved in the medium-to-long term,” says Premier Paper marketing director David Jones.
There are also varying opinions about the amount of stock that is tied up in the supply chain at present. Paperlinx’s cashflow crisis had caused it to run stocks down, and there were reports of it offloading what stock it did have at ‘fire sale’ prices in recent trading.
Stora Enso, for example, had reduced its exposure to Paperlinx by appointing alternative sales channels, and by going direct to market. Some industry watchers wonder whether other paper manufacturers will follow its lead – perhaps as a temporary measure – and go direct.
More chapters are yet to be written in the sorry saga of Paperlinx.
PAPERLINX TIMELINE
2000 Demerges from Amcor, lists on Australian Stock Exchange
2001 Acquires Spicers Paper, with operations in Australia, New Zealand, Asia and the US. Acquires Canada’s Coast Paper
2002 Acquires Canada’s Papier Turgeon, then Bunzl Fine Paper, subsequently renamed The Paper Company
2003 Acquires Buhrmann’s paper merchanting division, which includes Howard Smith, Robert Horne and M6 Paper. It is renamed Paperlinx Europe. European Commission approves the deal
2005 Plans to set up one of UK’s largest logistics companies, handling warehousing and distribution for all four of its UK merchants
2006 Acquires Canada’s Cascades Merchanting
2007 Acquires Antalis’ Italian business, sells Axelium in France
2009 Sells manufacturing business Australian Paper to Nippon Paper. Its remaining mills become Tas Paper, and are subsequently closed
2012 Now solely a merchanting business. Sells businesses in the US, Italy, South Africa and across Europe. 370 jobs go in Europe, 200 of them in the UK. Dissident shareholder Andrew Price appointed non-exec director, says he was concerned the company would “go broke” unless tough action is taken
2013 Acquires sign and display companies Cadorit in Sweden, and Total Supply in New Zealand. Price becomes chief executive
2014 Complaint against Sappi for anti-competitive behaviour is dismissed. Losses reduce by a third, on sales of A$2.8bn, but turnaround is slower than expected
2015 Price axed. Losses treble in first half to A$87.4m. Sells Spicers Canada. Tries to sell European operations. March Trading in Paperlinx shares suspended due to possible breach of covenants. GF Smith pulls its range. April Administrators take charge of most of UK operation, lay off 700 staff with immediate effect
OPINION: A world-class team stumped by the silver-tongued suits
Andy Davies, former sales and marketing manager at Robert Horne
I was a middle manager at Robert Horne for nearly 30 years until I was made redundant in 2010. After the initial shock I picked myself up, moved on and haven’t thought much about it since.
Then England flew home from the Cricket World Cup in ignominy and the coach, Peter Moores, said he would “look at the data”.
Suddenly, the last few years at Robert Horne came crashing back into my mind. We were drowned in data, presentations, analysis, figures, meetings, planning, focus groups, yada, yada, yada... If the England team suffered similarly, it’s no wonder they went out there paralysed by information overload.
And so it was in my last years at Robert Horne. I can’t believe I sat idly by and watched all those silver-tongued, overpaid, overeducated suits corrode the great company that we once were. That’s ‘company’ in the sense that Kenneth Horne used it, a company of people, all with different skills and attributes, some pretty conventional, some wildly eccentric but all united in the knowledge that, if you did your best and worked hard, your contribution would be recognised and a management unspoilt by consultants, theories and classroom claptrap, would concentrate on where the great ship was going, not the minutiae of how lifeboat drill was conducted.
I should have said something. Lots of us should. There were so many of us who knew it was going wrong but thought ‘they get paid loads these people, they must know what they’re talking about’.
Well they didn’t. They knew nothing. And a great company is arguably in its death throes and some amazing people lost as a result; great people whom, under the right management, could have bucked the recession and traded through the choppy waters.
And that makes me very sad and angry. Good people, shackled by endless management theory, strangled by petty regulations and made scared of succeeding by fear of failing.
Just like poor old English cricket.
READER REACTION
Printer: "I hope the price of paper does jump up because of this. I am one of those printers who does expect my customers to cover all of my costs, including when those costs increase. These events at Paperlinx should hopefully flush out the frightened below-cost printers, the headless chickens who blight our industry.”
Printer: "It’s going to have a massive impact. Merchants won’t be able to cope. Just think of the cashflow required. Short-term mills will have to supply straight into printers. It’s just mega. I really don’t know what’s going to happen.”
Print buyer: "I’ve told everyone in my organisation that they need to let me know immediately if they’re going to need to print anything in the next six to eight weeks that I don’t already know about.”
