Paperlinx hails progress as losses narrow in 2014 results

Chief executive Andrew Price has hailed the "significant improvement" in Paperlinx's underlying result as the merchanting group posted its accounts for the year ended 30 June 2014.

Underlying EBIT loss fell 71% from A$24.2m (£13.5m) last year to A$7m in 2014. In Europe, the underlying EBIT loss fell 44% to €16m (£12.8m), despite "continued challenging trading conditions in the UK, Benelux and Germany".

Paperlinx said it expected the full benefits of the cost savings achieved through its restructuring activities (which resulted in a pre-tax charge of A$34.4m in 2014) to flow through in 2015 and beyond, with particular benefit in the UK, Netherlands and Germany.

Price said: "Our turnaround strategy is bearing results, with a significant improvement in our underlying result, following strong performances in Canada and the ANZA region and improved positions in Europe."

He added that the group would continue to focus on growing revenues in its higher margin segments in Packaging, Visual Technology Solutions (VTS) - formerly Sign & Display, and Graphic Supplies as it looks to reduce its exposure to commercial print.

"Worldwide, trading conditions in our established paper markets remain challenging and changes in the competitive landscape further reinforce the need to redefine our merchant model and focus on growing our diversified businesses as part of our longer term strategy," said Price.

"Our strategy of exiting low-margin and unprofitable business in this segment is ongoing. To boost revenue, we will continue to improve our margin management and shift our focus to growing segments other than commercial print."

Gross margin in VTS, which now represents 11.3% of total sales, increased by 4.7%, while gross margin in Packaging (9.4% of total sales) rose 6.7%; the Graphic Supplies segment, which supplies plates, inks, software, coatings, chemistry and cleaning chemicals, represented 2.7% of total sales.

Paperlinx said that VTS in particular continued to grow, fuelled by growth in the out-of-home segment.

In Europe, VTS revenue was said to have fallen slightly, although gross margin improved as the company "focused on more profitable segments of the market".

The Packaging segment saw an increase in revenue and margin as a result of organic growth in Benelux, Poland and Scandinavia.

Group revenue from continuing operations rose marginally to A$2.8bn (2013: A$2.8bn). Operating and pre-tax losses fell 51.2% and 40.5% respectively to A$36m and A$51.8m; net loss fell 33.2% to A$62.9m.

"We have continued to lower our cost base through aggressive restructuring and achieved a drop in trading expenses by 11.9% in constant currency. With this cost benefit and by focusing on margin improvements and product innovation, we are progressing towards sustainable profitability," said Price.

Net debt at the year end was A$93.7m, a "historic low" for the company and down nearly 24% year-on-year, and the group also completed the extension of lending arrangements in its key UK facility.

The company also announced that it has started research and development into "product innovations that embrace new technologies and align with its existing product mix and customer base".