As promised, some results analysis.Today - diversified revenue /...

As promised, some results analysis.

Today - diversified revenue / GM
Coming soon - restructuring costs and benefits

Analysis based on pages 30, 31 and 32 of FY12 results presentation, and page 20 of recent FY13 interim results presentation. All in the public domain, just a bit of maths added !

Diversified Revenues:

1. In FY 12, Europe diversified revenue went up €18m, or +4.7%. Non-diversified revenue went down €135m, or -9.7%. So diversified only filled in 13% of the hole left by declining paper sales.

2. In FY12, ANZA diversified revenue went up A$4m, whilst non-diversified revenue went down A$48m, so only 8% of the hole was filled. ANZA total diversified revenue of A$33m for the whole FY12 year is less than just the FALL in paper revenues.

3. In FY12, Canada diverisified revenue went up US$0.3m, whilst non-diversified went up US$0.7m.

4. Turning to H1 FY13, we are asked to believe that diversification will save the day, yet in H1 FY13, packaging revenue went up A$8m, sign and display had "flat growth" (!?). So total diversified is up $8m, whilst total non-diversified is down $304m. So 2.6% of the hole is being filled.

In summary, growth in diversified revenue, if there is any, is filling something between about 3% and about 13% of the hole left by declining paper sales, at best.

Gross Margin

We are asked to believe that gross margin will improve through this diversification, but:

1. The volume decline in core business described above cannot be compensated for by any amount of %GM increase in diversified business.

2. The statistic of GM on diversified as % of total GM is profoundly misleading - it is merely a restatement of the precipitous rate of decline of revenue and GM amounts in $ in the core business, as the following will explain.

3. In FY12, in Europe diversified GM went up €3m in volume but the GM % went DOWN from 22.63% in FY11 to 22.36% in FY12. (All publicly available info if you do the math). So rather than saving the day, if anything GM% on diversified is going BACK DOWN towards the lower rates obtained on paper as PPX goes forward, rather than dragging % return on sales up. Whilst the GM on diversified went up €3m, the GM on non-diversified went down €58m, for a net decline of $55m. PPX would need to increase growth in sales of diversified by 20 times to compensate.

4. In FY12, ANZA diversified GM went up A$1m on sales up A$4, whilst revenue in non-diversified went down $48m.

5. In FY12, Canada diversified GM went up US$0.2m...


In H1 FY13, there is not the same amount of detail disclosed enabling this arithmetic to be done. Using page 20 and other numbers in the presentation, you can however work out that:

a. If S&D is 11% of revenue, it must be about $160m, flat year on year as the presentation refers to "flat growth" (meaning no growth). Is this the great hope for the future?
b. If packaging is 6% of revenue, it must be about $86m, with growth of "double digit". Why not just say 10% if that is what it is? So lets say $9m growth.
So total diversified growth of $9m on $246 = 3.7% growth.

c. By deduction, non-diversified (ie paper) revenue must therefore have gone down from $1498 in H1 FY12 to $1195 in H1 FY13. this can be summarised as follows:
Non-diversified down $303m or -20.2%
Diversified up $9m or +3.7%.

Comparing H1 FY13 to FY12, the diversified performance is getting WORSE, not better, as revenue growth has slowed down, and if the FY11 to FY12 trend continues then margins will also have deteriorated.

If there is anybody who still believes that diversified revenues will do anything to help PPX survive, then PIGS might fly...