This is an interesting story, just a shame the writer doesn't get all his facts right. Even today the share price was 60% less than the writer states. Lets hope that Marchant can turn PPX around. I've been averaging down ever since my dumb buy at 40 cents, pity I didn't wait till 10c. Poor Simon Mawhinney of Orbis funds, he was a clever bloke during the ConsMin takeover, but maybe lost his way with PPX.
Paperlinx chief Toby Marchant takes on the challenge of turning around the company.
Damon Kitney From: The Australian September 07, 2011 12:00AM
WHEN Toby Marchant fronted at Melbourne's Langham Hotel in October last year for the biggest meeting of his life, he wasn't expecting an easy ride.
The board of struggling paper merchant Paperlinx was desperately looking for a new chief executive to turn the business around and make it profitable.
Soon after posting a net loss of $225.3 million, Paperlinx had turned to Marchant, a tall Englishman and veteran of 30 years in the paper industry, who at the time was running the group's European operations.
"It was quite a star chamber environment," Marchant says of the meeting at which he presented his blueprint to the board.
"I am not sure what their alternatives were, but they certainly were not going to leave me with the impression that I was their only option."
Marchant gave his presentation. He called it Regaining Relevance, "because we had lost it, big time".
He thought it went down well. But one passing comment from director Barry Jackson at the conclusion of the meeting will live on in his memory.
"He said, 'Just a bit of advice, remember one thing: the only thing that matters is the result'. It was a very nice way of him saying to me, 'You might say all the fancy things you like and use pretty presentations, but the only thing you will ever be judged on is whether you turn this business around'," Marchant says.
Indeed, few chief executives in corporate Australia are under as much pressure right now as the 54-year-old.
One rival executive once described Paperlinx as "the roadkill of the paper industry".
The company is now no longer in paper manufacturing. It is a pure paper merchant with most of its earnings coming from outside Australia.
It has just posted its third annual net loss in a row, a $108m plunge into the red blamed on the higher dollar, weak volumes in its core European markets and one-off charges.
Its shares are trading at pitiful levels below 20c. In June they fell to an all time low of 16c. Five years ago they were worth more than $4.
"The amount of value destroyed in this company is unimaginable," says Simon Mawhinney, an analyst at Orbis Investment Management, Paperlinx's largest investor.
"The former management and board have done a terrible job."
So why take on a job that looks like a poisoned chalice?
Marchant says he is almost surprised at the question.
When the same question was pointedly posed by Paperlinx director Jim Hall during the Langham meeting last October, it caught him off guard. But this time around, Marchant's answer is better prepared.
"As I said to someone the other day, it is a bit like going to the most beautiful resort you have ever been but it is pouring with rain," he says.
"I really did want to take it, because of the challenge. I love the company. I have been working here for 14 years. There is a hell of a lot to do. There is a lot to fix. So the challenge behind this is genuinely exciting."
So did any of his friends advise against it?
"Not seriously," he says, before he starts to dream.
"Imagine fixing this. Imagine getting a company like this back on track. I hope I am not burdened with too much self-belief, but I really do think we can do it.
"In career terms it is without doubt the biggest challenge I have ever faced."
Indeed, Marchant is now on the steepest learning curve of his life, but in effect he can't lose.
As one fund manager put it: "Toby was a senior executive in this company before he got the top job. He was going to lose anyway if it died. So he might as well take the top job, get paid more, and if he can turn it around he is a hero."
As was foreshadowed earlier this year, chairman David Meiklejohn retired last week, to be replaced by former Ansell boss Harry Boon.
So a new team is in charge. But what many don't realise is that Marchant is now running Paperlinx, with its staff of 6500 people, from its global operational head office at Milton Keynes, a large town in southern England.
That was the choice of the board when he was appointed, given 70 per cent of the business is in Europe. And it was fortunate for Marchant, who has children aged 23, 21 and 17.
When he had previously asked his wife about moving to Australia to take a management job with Paperlinx, she was polite but firm. "She told me, 'If you feel you have to do it, I'm sure we will find a way to communicate'," he says with a smile.
Marchant was previously the managing director of Robert Horne, one of Paperlinx's three paper merchants in Britain.
He was appointed to the chief executive role at Paperlinx Europe on July 1, 2008, after being with the company for more than a decade.
He watched from afar as then chief executive Tom Park presided over a shocking net loss of $798m in 2008-09, its worst result since the company split from Amcor in 2000.
Paperlinx was also at one point at the mercy of its banking syndicate and issued hybrid securities to raise $285m. These step-up preference securities continue to weigh on the share price. Paperlinx pulled through, but not without sailing close to the wind.
"I was in Munich airport with my European CFO. And he took a phone call and looked at me and said, 'Toby, its over'. He said it was over because we were going to get supply lines withdrawn. But of course it never is. Merchants are incredibly robust. That was at least three years ago," Marchant says.
Park was heavily criticised for overseeing the destruction of much value at Paperlinx. The company's shares were trading at $4.48 when he was appointed in February 2004.
He was also drastically overpaid, a point acknowledged last year by Meiklejohn, and received a $1.8m payout when he left the company.
But Marchant describes the criticism of Park as "extremely unfair. Tom is an extremely good leader who did what he could with what he had in front of him. A lot of this was a consequence of circumstances.
"Tom was an excellent leader. He taught me a huge amount. I can honestly say I learnt more from Tom Park than anybody else I have ever worked for. He taught me about structure. I have always had the passion and the instinct. What he did was teach me to slow down, take a breath, plan, process and manage."
Simon Mawhinney's retort to this point is polite but blunt: "That is fair. But Tom Park was still overpaid."
Marchant, helped by UBS, is now working hard on his much-vaunted strategic review, due to be delivered before the group's 2012 annual results.
Everything is on the table, even potentially a move to a London listing.
"Given where we have been, everything becomes possible. I can't rule that out. I can't rule anything out," he says.
"(But) as things stand, actually it is a very comfortable relationship to have. If you are a global enterprise, Australia is actually a really good place to be because it is so outward looking."
The new strategy will include accelerating diversification away from simple paper merchandising to create a company capable of investing in a sustainably profitable future.
"We have growth rates in some businesses in some markets of 10 per cent a month. We have this incredible logistics set-up in all our big markets. It is easy for us to add to that logistics platform in a way which is much more efficient than for competitors in things like packaging and sign and display," Marchant says.
"We are moving out of the traditional merchant model to being a broad-based materials supply company to printing, industrial and corporate. With that comes better margins, better selling prices."
Marchant has already had to make some tough calls on staff.
He's just sacked two members of the executive committee that he formed late last year.
"One of them is a guy I know extremely well who was heavily influential in me getting this job. That is extremely hard. I have just said goodbye to him a couple of days ago," he says.
"He was very unhappy. He said, 'I wanted to be part of the recovery, the upside'."
The group's latest net loss before significant items of $24m was within its market guidance of a loss between $23m and $30m. (One-off items and currency blew the loss out over $100m).
This is an important start for Marchant.
"In spite of the huge loss we have booked, this is a far stronger company than it was before," he says.
"You can only clear the decks once and I knew we had to do that properly. Starting with a new base level was vitally important."
Analysts at Goldman Sachs and Commonwealth Securities applauded the positive operating cashflow generated in the past six months and the company's "reasonable" funding position, though both remain gloomy on the outlook.
Net debt has been reduced to $172m at June 30 from $1.1 billion at December 2008 through the sale of Australian Paper and European assets.
Mawhinney says its too early to comment on Marchant.
"We are hoping that he is able to stem the losses and return the company to profitability," he says. "We will never get our money back on this investment but we would expect to do well from here."
But he adds a note of doom. "In this instance, it might just not be possible. I don't know what will win out, good management or terrible macro trends. But at this stage, I wouldn't be confident that management can do it," Mawhinney says.
Marchant will hear nothing of it. Asked if he is prepared for failure, his response is abrupt and resolute. "No, not at all. And I don't think there is any need to be. We've got fantastic leverage, scale, there is a huge amount to do before we can even think about that."
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