paperlinx stuns with 20 per cent fall

Paper merchant PaperlinX has shocked the market by announcing it expects a 20 per cent fall in 2004/05 earnings and blames a number of factors, including the strong Australian dollar.

But chief executive Tom Park said the second half dividend would be shored up by a $73 million tax benefit gained during the year.

In 2003/04 PaperlinX, whose flagship brand is Reflex, reported an 18 per cent fall in net profit to $108.5 million.

Mr Park said it had become clear that after looking at its March results the assumptions PaperlinX had used in its February guidance were not likely to hold up in the fourth quarter.

He said a key problem was the Australian/US dollar exchange rate which is exceeding previous assumptions and is forecast to continue to do so for the remainder of the financial year.

"This results in pressure on Australian paper selling prices, reduced export earnings and lower translation of overseas earnings," Mr Park said.

"On a comparative basis, we now see the exchange rate finishing the year consistent with the current levels around 78 (US) cents, versus the 70 (US) cents rate used in our previous forecast, which was projected by top Australian banks in the December/January period."

But analysts questioned Mr Park at a briefing on Thursday about who had advised the company on the fortunes of the Australian dollar.

One analyst maintained that, whoever it was, they were frauds who had put PaperlinX into a tight spot.

However, Mr Park said it was not just the currency causing the problem.

"There are three major impacts, not just the (dollar) experts but us taking the March results and projecting through the market assumptions, the pricing assumptions and the currency assumptions into our business and putting together a forecast.

"As soon as we realised that we put it out into the market."

There has been price deterioration on most grades of paper in the second half compared to the expectation of firming prices and softer second half demand throughout major markets, Mr Park said.

He said, in determining the level of the final dividend for 2005, the board will take into account the benefit of the Australian tax consolidation that was included in the first half results.

"We are very much aware the majority of our shareholder base is retail and a lot of them are very interested in the yield from our stock and we will take that into consideration," Mr Park said.