2009 at a glance
The 2009 year saw an unprecedented fall in demand for paper in all key markets as a result of the global economic slowdown. Paper volumes fell sharply from October 2008 off an already depressed base, and remained weak through the balance of financial year 2009. A range of actions were undertaken through the year to reduce costs and net debt, but were not enough to mitigate the impact of the weak demand. Key features of the year and result were:
- A significant deterioration in global paper demand, reducing overall market volumes in our key regions by 15–20 per cent in the second half.
- The sale of Australian Paper (excluding the Tasmanian operations) for $600 million, plus net asset adjustments and a potential earn-out over three years, has had a major impact on reported results in terms of both lower debt and significant items.
- Reported loss after tax for the year ended 30 June 2009 of $(798.2) million, included $(727.9) million in after tax significant items. Divisional EBIT, excluding corporate costs, was $110.1 million (down 42 per cent), while reported EBIT before significant items was $16.4 million.
- There was significant debt repayment through the sale of Australian Paper, European properties and an equity raising. Net debt of $217 million at 30 June 2009 compares with $1,062 million in December 2008 and $776 million at 30 June 2008.
- Net working capital at 30 June 2009 was reduced by $184 million. This includes the impact of the sale of Australian Paper offset by unfavourable currency movements. The year end working capital/sales ratio for the Company is the lowest it has ever been at 13.6 per cent, led by structural reductions in inventory.
- Major expense reductions were achieved through the year, including a 13 per cent reduction in North America (21 per cent in the second half) and a 9 per cent reduction in Europe (12 per cent in the second half) versus prior year, underpinned by a worldwide headcount reduction of over 8 per cent (excluding the sale of Australian Paper). Additional head office restructuring activities resulting from the sale of Australian Paper will benefit 2010 with a lower cost base and a more efficient structure.
- The depressed results, compounded by foreign exchange losses in the first half and expected property sales not completing by December 2008 (subsequently completed in the 2009 fiscal year), caused the Company to breach banking covenants, which in turn led to significant fees and adviser charges that would otherwise not have been incurred. Having resolved issues surrounding breaches of covenants in the 2009 financial year, PaperlinX and its lenders have agreed to terms that will secure bank borrowings out to February 2011 and noteholder debt to 2013/15.