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PaperlinX predicts strong pricing ahead

Feb. 22, 2007 (AAP) - PaperlinX Ltd forecasts stronger prices for its products in the second half of the year but will rely on its own strategic initiatives to drive earnings.

Australia's biggest paper merchant expects some reduction in global capacity and a lift in prices as supply and demand forces gather momentum.

However, higher raw material costs, cheaper imports, the strong Australian dollar and a weak UK market are keeping a lid on a complete recovery.

The group on [Feb. 22] reported a seven per cent fall in net profit to $32.7 million for the six months to December 31, 2006, from $35.3 million in the previous corresponding period.

It achieved underlying operating earnings of $96 million before the costs of strategic initiatives and profit on sales of non-core assets - a 24 per cent lift on the previous corresponding period.

Earnings before interest and tax rose 10 per cent to $87.1 million from a 10 per cent growth in revenue to $3.94 billion.

Chief executive Tom Park said any price increases in Europe due to mill closures were not expected to have a major benefit for the results in the second half.

"Our results will be driven largely by our internal initiatives rather than any external benefits, but the climate is improving and should have benefits in future years," Mr Park said.

He said a $13 million rise in input costs was mostly offset by cost and efficiency improvements within the business.

PaperlinX closed its Shoalhaven No.1 and No.2 paper machines, at Nowra, about 160km south of Sydney, and upgraded its No.1 machine at Maryvale Mall, 160km east of Melbourne.

It also consolidated its head office in Melbourne and acquired Spicers Canada.

Other initiatives underway include an upgrade to the Maryvale kraft pulp capacity and bleach plant, the roll-out of common European IT systems.

Mr Park said the Australian Paper division operating earnings of $3 million, which included $9.6 million of one-off costs, remain under significant pressure due to low pricing and the inability to recover input-cost increases over three years.

"This has been the key issue for some time and remains the case," Mr Park said.

He said the European market remained challenging, particularly in France and Germany, while demand in the UK has yet to show any sign of recovery."

In North America, volume was up three to four per cent as paper prices continued to be supported by capacity reductions.

PaperlinX is acquiring the Italian paper merchanting business of European group Antalis, and divesting its French paper merchanting business Axelium.

In another initiative, PaperlinX will issue between $250 million and $300 million of hybrid equity in the form of step-up preference Securities (SPS).

It said the SPS would reduce debt and enhance the group's financial platform to take advantage of opportunities.

SOURCE: AAP




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