The merchanting group’s worldwide sales fell 12% to A$1.3bn (£659m), but pre-tax losses ballooned to A$87.4m for the six months to 31 December 2014 compared to losses of A$25.3m for the same period the year before.
However the pre-tax loss included an impairment charge of A$63m in relation to goodwill in Canada and Asia and other non-current European assets. Underlying EBIT loss was A$12.7m compared to A$11.9m for the six months prior.
In its results statement, the group said one of its key objectives was to continue its diversification away from commercial print, with its Sign & Display/VTS, Packaging and consumables divisions now generating 12.1%, 10.8% and 2.9% of sales respectively.
However, once again the group’s European operations, which generate two-thirds of its sales, were cited as being responsible for much of its woes.
“Despite consistently positive performances from Spicers ANZA and Spicers Canada, the interim results are negatively skewed by the underperformance of the European business, which experienced a very tough six months and in particular the second quarter,” said Paperlinx chairman Robert Kaye.
Half-year sales across Europe fell 15% to €610.9m (£444m) year-on-year, with pre-tax losses almost doubling to €35.3m from €18.2m. The divisions underlying EBIT loss increased 13% to €14.9m.
“We have continued to lower our cost base through restructuring and cost reduction initiatives and achieved a drop in trading expenses, but this has not been enough to offset the fall in sales in Europe, which has impacted the group’s performance. This also led to pressure being placed on our European lending covenants,” said Kaye.
The group’s net debt increased by A$64m to A$157.6m in the last six months of 2014. The group’s debt facility with its main lender in Europe is set to expire in September, but it said that it was in discussions regarding an extension.
The UK is the group’s single largest market in Europe and, according to the firm, Paperlinx UK is increasingly competing with European mills that are selling directly to its customers at "unsustainably low prices”, negatively impacting sales, profits and market share.
“This is a disappointing result out of Europe. In December, when we announced the strategic review, the board flagged it was taking a more cautious stance on the outlook for the European business,” said Kaye.
He added that the sale of Spicers Canada earlier this year had provided the liquidity the group needed to continue the 90-day strategic review it launched in December.
“The review is progressing and we remain positive about the prospects of securing transactions with one or more interested parties in relation to our European businesses.”
The group’s statement said that negotiations for a sale of the European business as a whole or of certain operations were progressing “in a positive direction”.
“Once the review is finalised and the recommendations are implemented, it is likely that Paperlinx will have a reduced portfolio of assets with greater prospects for financial stability,” said Kaye.
Earlier this week the group appointed a new chief executive, Andy Preece, following the sacking of Andrew Price earlier this month.
