News

A game of musical chairs has taken place over the past year in the paper merchanting world. Barely a month seems to go past without news of yet another top or middle management figure being shunted into a new role.

But what’s been behind the reshuffle? Is it to freshen things up and help combat the financial problems that are currently blighting the industry, such as rising production costs and millions of pounds in defaulted payments from customers? Or is it just natural churn as a result of the consolidation that has been occurring?

Perhaps the best place to start to explain the various movers and shakers is the leading merchant, PaperCo. The group tops the table yet again this year (see page 24), and its divisions have gone through several changes in recent months that have caused ripples throughout the sector. When managing director Alistair Gough was charged with taking over the reigns at sister company Robert Horne, his position was filled by Steve King, the former chief financial officer for PaperlinX UK, Ireland and South Africa.

Similarly at rival merchant Robert Horne, Dave Allen, the company’s former managing director, switched over to become regional president for parent company PaperlinX UK Ireland and South Africa. The reshuffle stemed from the promotion of PaperlinX’s Toby Marchant, who was made chief executive of the division this month.

It’s also been all change at Antalis. The company hit the headlines after its UK managing director Henry Cubbon left the firm, with Cubbon citing Antalis’ purchase and then merger of the Map Merchant Group as a reason for his departure. Another of its directors, Giles Harrison, also left as a consequence of the structural changes recently announced by the group.

Volatile times
If nothing else the various ins and outs demonstrate how volatile the paper merchanting market is. Like print, paper is going through a massive period of change. Consolidation is rife, which means that many of the smaller players will inevitably fade away, and insolvencies are also on the up. The problems are also being exacerbated by the woes that the merchant’s customers are having to endure, with defaulted payments becoming all too common and causing a knock-on effect for the sector that hasn’t gone unnoticed by financiers.

Credit insurance broker Aon Trade Credit estimates that paper merchants have claimed over £10m for debtor insolvency over the last 12 months. It also warns that further paper sector insolvencies are expected, as credit insurance costs could rise by 10%. Most worrying of all, this could lead to an alarming scenario in which credit insurers could withdraw cover from the paper market.

A quick glimpse at this year’s paper merchant table confirms the pace of developments. At the time of Antalis’ acquisition of Map, some industry experts claimed that the power it would wield over the UK market was unacceptable. As a result, Antalis sold off Premier Paper, which was part of Map, to Beswick Paper this year. Beswick Paper subsequently moved up a division with the acquisition, buying the £144m-turnover company for £19.1m and in the process creating an £180m heavyweight and a new number one independent paper merchant knocking fellow independent Elliott Baxter off the top spot.

While many agree that the industry has recently witnessed some torrid times, others prefer to put a positive spin on things. Robert Mannix, business development manager at GF Smith & Son, reckons it’s been an exciting 18 months and the UK market has been thriving. "We had the biggest trading year in the company’s history in 2007 and have continued to grow year on year sales into 2008," he adds. All this despite an increase across the board of raw material costs.

For the remainder of 2008, he says that the digital market is an important focus as margins are less pressurised there. "We remain positive for 2008 and expect sales to continue to grow, he says. Our investment in this downturn will place GF Smith in a more powerful position when the market recovers in 2009."

So at least one player in the market is happy and optimistic about the year ahead, but across Europe many are expecting a bumpy ride thanks to the fragile state of the global economy. Rising energy prices have been a major influence on the sector and paper prices have risen accordingly.

Foreign competition
On top of all that is the decline in UK manufacturing. "This has meant that we are now very much at the mercy of suppliers outside of the British Isles," says Mike Gee managing director of independent merchant Denmaur Papers. "This factor, alongside the significant deterioration of sterling against the euro, has led to some large price increases in the publishing sector. The reality is that in these circumstances, many publishers are either reducing run lengths or the quality of the papers they use."

Also at the forefront people’s thoughts is the environment. While going green isn’t anything new, the paper industry may not be too pleased to hear that many organisations are looking at reducing paper usage even further. However, many merchants are taking advantage of the environmental and using it to help market themselves.

James McNaughton Group is one company doing this. It has focused on its environmental performance and reduced its carbon emissions by 33%. Tony Porter, James McNaughton’s group marketing director, says this was a result of hard work through a variety of activities including a formal energy policy watch, investing in electric trucks and reducing fleet miles. The firm reviewed its logistics fleet and that alone resulted in a CO2 reduction of 975 tonnes per year.

This ability to respond to market changes will be what sets the survivors apart from those that end up on the scrapheap. Martyn Eustace, the former chief executive of Premier Paper, adds that the days when a merchant’s virility was based on the number of warehouses or the size of its fleet are gone.

"Now, a merchant must look keenly at his cost base and ask himself if customers are prepared to pay for all the services offered," says Eustace.

After a period of rapid changes and challenges, many hope that the market will settle down in 2009 and companies are already looking to build on new strategies that are based on sustainable profit. But in the meantime the short-term outlook is very much about surviving, not thriving.

PROMOTING PAPER - NAPM

With the industry beset by a number of woes over the past 12 months or more, the National Association of Paper Merchants (NAPM) is doing its best to address the issues.

One of its latest initiatives to help the industry prosper is a campaign to promote paper as a sustainable product.

The campaign, which has been christened ‘Two Sides’, will be launched at the NAPM’s annual suppliers forum on 7 October this year. Details about the campaign are a bit scant at the moment although two straplines - ‘There are two sides to paper’ and ‘Paper has a great environmental story to tell’ - have been unveiled to help ram the message home.

The aim of the new drive is to dispel the myths that some organisations have bandied around about paper in the past, according to NAPM director Tim Bowler.

"As we all know, paper is a fully recyclable and wholly sustainable product. We want to ensure that those who use paper responsibly aren’t made to feel guilty about it," explains Bowler.