details on why i'm negative on ppx

For those who believe I’m unduly negative about PaperlinX, here are some solid facts for consideration.

When assessing a possible business turnaround, which PPX desperately needs to make, one of the best places to start is its key market and key opposition in the key market. In the case of PPX, its principal opposition in Europe is Antalis.

Kindly refer to Sequana / 2010 Document de référence (English version) at

http://www.sequana.com/wp-content/uploads/2011/10/Sequana_DRF2010_UK_MEL3.pdf

This is an extraordinary 208 page document.

Extracts below may be confirmed:

“Fiercely competitive market
In the past decade, the European paper distribution market has become far more concentrated. In a market estimated to represent 30 million tonnes, half of which are handled by distributors, the top five players currently have an 80% market share.

Competition has grown fiercer over the last few years, in terms of both sales to printers and sales to corporations and offices. In addition to companies whose businesses are exclusively and directly similar to its own (PaperlinX, Igepa, Papyrus), Antalis also competes directly with paper producers who are also distributors (Burgo Merchant, Torraspapel), and with office supply dealers, who often use paper as a loss-leader (Lyreco, Office Depot, Staples).

Excess capacity in the paper sector and a tough economic climate over the past few years have prompted certain paper manufacturers to increase their direct sales, sometimes at the expense of sales via specialist distributors like Antalis.” [looks a tough gig to me]

“Balanced European coverage
Antalis now has operations in 28 countries [of Europe] and is the leader in ten of them. [its also #2 in another 10] It has reached critical mass in most of its markets, allowing it to optimise the supply chain and strengthen partnerships with key suppliers. This broad geographical base also allows the Company to spread risk.”

“Sales by geographic area
Rest of the world, 10%
France, 13%
Western Europe, 44% (excluding UK and France)
United Kingdom, 19%
Eastern Europe, 14%”

[In other words, UK & Europe = 90% for Antalis whereas for PaperlinX this region is circa 70% of sales.

“Recurring operating income by geographic area

Rest of the world, 19%
Eastern Europe, 12%
Western Europe, 69%”

“Sales by business segment

Packaging 6%
Visual Communication 4%
Office 20%
Print 60%
Other 10%”

Other observations:

Notice the full disclosure which is generally absent in PaperlinX’s reporting.

If you care to look at the shareholding and directorships, Antalis looks to be a VERY solid business with three long term shareholdings > 50%.

Back to PaperlinX UK. One of its key businesses is Robert Horne where Toby Marchant was formerly MD.

“Robert Horne Group heads towards the black [i.e. not profitable]

5th Dec 2011
Losses have narrowed at Northampton-based Robert Horne Group as the company posted a £373,000 loss after tax in its latest year-end accounts. The paper, board and plastics merchant recorded a slightly lower turnover of £302.9m, and admitted the year ahead looked "challenging".

Full article at http://www.insidermedia.com/insider/midlands/62899-robert-horne-group-heads-towards-black/index.html

Not too flash for an acquisition made in 2003 and previously run by Toby Marchant for many years. Doesn’t give me much confidence.

I could go on …