In December 2009, PaperlinX purchased an $18m currency option to hedge the downside foreign exchange exposure of an intercompany loan. However with the Australian dollar’s near parity with the US dollar the non cash impact of the option is expected to be a valuation loss of approximately $23m pre tax ($17m post tax).

A statement from the company outlines, “The option covering the period to June 2012 was entered into following the closure of a cross currency swap. After deducting the $18m cost of the option, $56m in cash was released and used to fund the closure of the Company’s loss making Tasmanian operations.”

PaperlinX commenced accounting for the option in December 2009 and recorded a valuation gain of $3.7m in the July/December 2009 result and a valuation loss of $3.7m in January/June 2010. The company adds that the accounting valuation of the option will continue to fluctuate during the period to June 2012.

PaperlinX will be releasing its results for the six months to 31 December 2010 to the ASX on February 24.

The company statement continues, “As a result of this valuation loss the statutory reported result for the 6 months to 31 December 2010 is expected to be a loss.

“However underlying earnings (which will exclude the valuation loss of the option) are expected to be positive and meaningfully ahead of underlying earnings for the prior corresponding period.”

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