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PaperlinX seeks $400m 'bolt-on' acquisitions

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    The Age
    October 24 2002
    By Richard Salmons

    PaperlinX would consider further acquisitions in Europe or North America worth up to $400 million, but if it can't find anything to buy it will conduct a return of capital, the paper distributor's annual meeting was told yesterday.
    "Both in North America and Europe rationalisation of the paper manufacturing sector and restructuring of the channels of paper distribution provide us with significant opportunities," managing director Ian Wightwick said.
    Mr Wightwick explained that PaperlinX wanted new acquisitions to be profitable in their first year and achieve a 15 per cent return on equity by the third year after the purchase.
    "If we can't identify appropriate opportunities that meet our strict criteria, management would consider recommending a return of surplus capital to our shareholders one way or another," he said.
    According to Mr Wightwick, the most likely acquisitions would be "small or bolt-on" businesses that would extend PaperlinX across the English Channel following its $377 million acquisition of Bunzl in the United Kingdom earlier this year.

    He said PaperlinX could spend up to $400 million on such acquisitions, while extending gearing from its current 20 per cent to no more than an acceptable 35 to 40 per cent range. Meanwhile, he ruled out significant acquisitions in Asia.
    PaperlinX increased net profit 16 per cent to $123 million in the year to June, while sales rose 26 per cent to $2.96 billion. However, earnings per share barely moved, thanks to substantial issues of new shares including $125 million worth of stock to fund the Bunzl purchase.
    "We don't have any plans to do that again, and we have the focus on increasing earnings per share," chairman David Meiklejohn said, responding to a question on the issue. He added that results were ahead of budget for the first quarter of the current financial year.
    Responding to a number of questions about the company's environmental management, Mr Meiklejohn said PaperlinX had sold its forest plantations because it believed the return on funds employed in forests was too low for a company of its kind. He said PaperlinX had tied up long-term supply contracts for its wood.
    In relation to materials from Indonesia, Mr Meiklejohn said one supplier, Asia Paper Resources, had rejected claims that a large proportion of its paper sources were illegal.
    "They have been public in saying that what they manage is legal," Mr Meiklejohn told the meeting.
    Stockbroking analysts predict on average a net profit of about $157 million for PaperlinX in the year ending next June. The share price was unchanged yesterday at $5.


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