MANAGING DIRECTOR’S
REPORT
Tom Park
Managing Director and
Chief Executive Officer
2008 proved to be the challenging year we thought it might be. The external environment continued to deteriorate, and overall industry returns around the world remain poor. The manufacturing sector in North America and Europe particularly came under pressure from rising costs and declining volumes.
Against this environment we continued to pursue the path we have been following for the past four years. While it is sometimes not easy to see those benefits in a falling market and in such volatile times, we are moving the Company closer to a more sustainable future. 2008 was a pivotal year in this context. We have, or are close to completing a number of significant investments to improve the competitiveness of your Company. Progressing these activities has not been easy, and the speed of progress of the pulp mill upgrade at Maryvale has been a particular disappointment; though the strategic rationale for the project remains sound, and expected benefits have improved over time.
Going into 2009, as we complete this key project, we will realise the production cost savings, product improvements and a superior environmental footprint the project has been designed to achieve.
Group Results
The PaperlinX profit after tax for the 2008 financial year was $72 million, down 10 per cent on last year’s $80 million. Group operating earnings before interest and tax (EBIT) were $160 million. This is 14 per cent down on last year’s $186 million. This operating result reflects the difficult business environment mentioned above along with costs associated with the Pulp Mill upgrade through the year.
These results are clearly not acceptable. We understand that and do not shy away from the hard decisions needed to provide our stakeholders with the returns they expect. In fact we started on the changes we believe are needed some years ago and have been regularly reporting openly against these strategic initiatives. Certainly the externalities have been much more negative than anyone expected, but if we had not followed our current path of growth in merchanting, investing against competitive advantages and reducing our position in non-competitive or strategic activities, our position would be worse.
We have diversified into Paper Merchanting, with that sector of our business currently providing the majority of our earnings. We have consolidated businesses and facilities, structurally reducing the funds needed to run our businesses and the costs incurred. We are currently investing heavily into our manufacturing business to improve its competitive position and reduce costs further. These priorities take time to complete, but the benefits to date have enabled us to absorb the significant negative headwinds.
All of this has kept pressure on our financial resources. Our key metrics are tighter than we would prefer, and we have kept focussed on our priority areas to ensure that the dollars we have to invest are invested with the best payback. It is encouraging that we have more opportunities than we have the capacity to deal with. We will continue to ensure that the Company has adequate funding coverage, and will continue to look for ways to self-fund our ongoing investments through reduction of working capital or sale of non-core assets.
People
We have been working hard to make sure that we have the right people in the right places and that we provide them with the skills they need to make their best contribution. Training in the areas of safety, sales and leadership have all figured prominently in the last year. These activities are time consuming and expensive and we must prioritise carefully, but ultimately they are critical investments in the future of PaperlinX. If you want to see a compelling argument for investment in people have a look at our safety performance. Not yet perfect, but progress we can be proud of.
Sustainability
As in prior years we have a dedicated report on this subject (available in hard copy or on our website, www.paperlinx.com).
Launch of Values
2008 saw the launch of the PaperlinX Values. These Values have been arrived at after a great deal of consultation across the Group. Our Values are supported by behaviours that relate to how we expect all employees to act with each other, and with our customers, suppliers and others. For details of our seven Values I would encourage you to visit our website (www.paperlinx.com).
Conclusion
I would like to thank my fellow employees for the energy and dedication they have applied during very difficult economic times. It is one of the great challenges during such times to keep the focus on key areas when short-term issues are so acute. I am proud of the way our people have applied themselves, and the dedication shown at all levels of our organisation. We have made further progress down our chosen strategic path and while 2009 will be another year of challenge, I know we have built a team that is up to that challenge.
Thomas P Park
Managing Director and Chief Executive Officer