PAPER
MERCHANTING

REGIONAL BUSINESS
RESULTS

Paper Merchanting Europe

PaperlinX is one of Europe’s leading independent merchants of paper and related products for the commercial print, office, packaging and display markets. Our European network of paper merchants across 17 countries provides over two million tonnes of paper products to our 80,000 customers. The customer base comprises printers, publishers, sign makers and advertisers who produce high added value, time-sensitive publications. We also serve resellers, retailers, offices and businesses with paper and packaging material.

Paper Merchanting Europe – Results

		Year June 2008	Year June 2007
NW Europe	’000 tonnes	690	738
UK and Ireland⁽¹⁾	’000 tonnes	1,147	1,180
Central and Southern Europe	’000 tonnes	528	525
Total European sales volume	’000 tonnes	2,365	2,443
Sales revenue	€m	2,743	2,828
Earnings before interest and tax	€m	83.3	82.8
EBIT/Sales ratio	%	3.0	2.9

(1) Also includes volume from South Africa.

Sales volumes were down 3 per cent. Our key markets in the UK and the Netherlands both suffered market driven volume declines, with reduced stock volumes and office products sales.
The average price realisation across the European Merchanting platform was in line with last year, with the benefits to mix of the acquisition in Italy, continued growth in Sign and Display and Industrial Packaging in a number of markets, and branded sales of key coated and environmental papers balancing lower stock volumes.
Reported EBIT was in line with the prior year, despite the lower volume, supported by gains on asset sales. Underlying EBIT was down 15 per cent (although in line with 2006), with the weaker UK result exacerbated by a weaker £ versus the €. The reported EBIT/sales ratio was 3.0 per cent.
Average working capital improved as did the average working capital to sales ratio, which improved to 17.4 per cent from 17.8 per cent in 2007.

Paper Merchanting North America

PaperlinX is a leading US West Coast and Canadian fine paper and graphic arts merchant distribution network serving printers and graphic customers across North America with a unique offering of products from domestic and international suppliers. Custom sheet converting facilities offer a fast turnaround to provide sheeting to meet customers’ exact size dimensions, eliminating waste and increasing customers’ productivity. As well as offering a wide variety of paper options, many of our operations also provide graphic systems solutions.

Paper Merchanting North America – Results

		Year June 2008	Year June 2007
Sales volume	’000 tonnes	645	623
Sales revenue	US$m	1,138	1,078
Earnings before interest and tax	US$m	28.9	40.2
EBIT/sales ratio	%	2.5	3.7

Total sales volume growth for North America of 3.5 per cent (5.5 per cent adjusted for sale of Western Canada) was well ahead of a declining market, supported by a 6.5 per cent growth in proprietary brands and various top line growth initiatives. Market share growth was strongly positive.
Overall market conditions were soft, with the US showing reduced market volumes (total US printing and writing paper volumes were down 4.7 per cent in calendar 2007 and a further 3.2 per cent for the six months to June).
US paper selling prices continued to be supported by mill capacity reductions (some 2.1 million short tonnes of woodfree capacity alone in North America in calendar 2007), with realised prices up 2 per cent on last year despite ongoing weakness in market demand. Canadian prices remained under pressure from the weak US dollar.
The total operating earnings result was sharply lower, reflecting the impact of the weak US market on EBIT margins, down to 2.5 per cent.
Kelly Paper was under particular pressure as a result of the sharp weakening of US retail and residential housing sectors on the West Coast. Both volumes and prices fell, with margins depressed.
Canadian prices were down over 5 per cent as a result of the weak US dollar, but due to disciplined margin management gross profit percentage was up almost one full percentage point. Overall EBIT was lower as the business absorbed one-time costs relating to the new Toronto warehouse.
Average working capital to sales at 12.7 per cent was an improvement over the prior year’s 13.0 per cent.

Paper Merchanting Australia, NZ and Asia

PaperlinX is the leading Merchanting group in Australia and New Zealand, and also has specialist Merchanting operations in Asia and an extensive global paper trading business, PPM. The primary focus is on commercial print, packaging, web and office segments, with a growing level of activity in graphics supplies. Our network of locally based merchants offers compelling benefits to the local market in the way of product range, quality and availability, supported by our global scale.

Paper Merchanting Australia, NZ and Asia – Results⁽¹⁾

		Year June 2008	Year June 2007
Sales volume	’000 tonnes	731	725
Sales revenue	A$m	1,005	1,033
Earnings before interest and tax	A$m	21.0	13.8
EBIT/Sales ratio	%	2.1	1.3

(1) Includes the Group’s paper trading activities.

Reported EBIT was up 52 per cent, with underlying EBIT up 34 per cent. The prior year included negative currency impacts that were not repeated. Revenue was down 3 per cent, with lower revenues in paper trading (Paper Manufacturing plant shuts reducing export tonnage) having a considerable impact. Excluding paper trading, revenues were down only 1 per cent.
Pricing in Australia and New Zealand remained under pressure from a weak US dollar. Overall price realisations for the region were down around 3.5 per cent, with regional and mix variations. This trend is reversing, with increases being realised in early fiscal 2009.
Average working capital was reduced 15 per cent as a result of ongoing good performance on inventory management and warehouse consolidations leading to a continued improvement in the average working capital to sales ratio (11.6 per cent to 10.2 per cent).
Earnings benefited from good performance on operating expenses, which were down 4 per cent.

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PAPER MERCHANTING

REGIONAL BUSINESS RESULTS